4.5 role of the state in macroeconomy Flashcards
what are the types of government expenditure?
Capital government expenditure, General government final consumption, Transfer payments, current government expenditure
what is capital government expenditure?
spending on investment goods such as new roads, schools and hospitals which will be consumed in over a year.
what is general final consumption?`
spending on goods and services that will be consumed within the next year, such as public-sector salaries
what is transfer payments?
government payments for which there is no corresponding output, where money is taken from one group and given to another, for example benefits and pensions.
what is current government expenditure?
general government final consumption plus transfer payments plus interest payments.
how much of the expenditure is spent on defence?
6% is spent on defence
how much of the expenditure is spent on protection?
4% is spent on protection
how much of the expenditure is spent on education?`
12% is spent on education
how much of the expenditure is spent on pensions?
20% is spent on pensions
how much of the expenditure is spent on welfare?
15% is spent on welfare
how much of the expenditure is spent on transport?
2% is spent on transport
how much of the expenditure is spent on health care?
18% is spent on healthcare
how much of the expenditure is spent on interest repayments?
7% of all government spending is on interest repayments of loans.
what is the relationship between average income and government expenditure and why?
the lower the average income of the country, the lower is likely to be the percentage of GDP spent by the government. this is due to the fact that poorer countries have lower tax revenue (inefficient collection, small amounts of wealth to tax, avoidance). higher income countries usually demand more from government
what is the US public spending like?
USA has much lower state spending, and
this is due to attitudes in that country.
what is the effect of the global financial crisis on government expenditure?
the global economic crisis has increase government expenditure as there are increased welfare payments and some countries needed to bail out the banks for example the government bailed out Lloyds bank and the bank of Scotland
what is austerity?
a set of economic policies, usually consisting of tax increases, spending cuts, or a combination of the two, used by governments to reduce budget deficits.
how does government policy affect government spending?
policies such as austerity will reduce the expenditure so the amount of spending by the government may depend on policies and targets set by the government
what is a demographic change that affects government expenditure?
an aging population will put more pressure on government expenditure as there will be a greater number of pensions and larger amount of care needed
give an example of a demographic change affecting expenditure by governments
aging population is becoming an issue in Japan and Europe
what are the impacts of government expenditure?
Productivity and growth, Living standards, Crowding out, Level of taxation, Equality
what is the pros of government expenditure on productivity and growth?
the government can improve education -increase human capital, they can increase healthcare -productive workers, they can use their economies of scale when providing goods- increased productivity, they can do research and development which may not be done by private (positive externality), they can use multiplier effect to target areas of high unemployment - increased growth
what are the cons of government expenditure on productivity and growth?
Free market economists argue that government spending is wasteful and causes inefficiency.
what are the pros of government expenditure on living standards?
government corrects market failure and provides public goods , which improves social welfare. they also reduce absolute poverty by providing benefits and basic goods such as education and healthcare