2.2.4 - Government Spending

Question 1

What are the Influences on government spending?

Answer 1

Trade Cycle (Automatic):
- In a boom more people in work means less spending on unemployment benefits
- During a recession, higher unemployment means spending on benefits increases

Fiscal Policy (Discretionary):
- Government can choose to spend more to
‘stimulate’ the level of aggregate demand
- A policy to reduce the budget deficit might lead to a fall in government spending