4.5 Role Of The State In The Macroeconomy Flashcards
What is the definition of Capital Spending?
Capital spending refers to government expenditures on long-term investments that are expected to benefit the economy and society over an extended period.
What are some examples of Capital Spending?
- Building highways, bridges, or railways
- Constructing schools, hospitals, or government buildings
- Investing in renewable energy projects or public transportation systems
- Purchasing defense equipment
What is a key characteristic of Capital Spending?
Long-term benefits are spread over many years or decades.
How does Capital Spending contribute to economic growth?
It boosts economic development by improving infrastructure, creating jobs, and increasing productivity.
What is created through Capital Spending?
Tangible assets that can be used by future generations.
How is Capital Spending typically funded?
Typically funded through borrowing, as the projects are large and costly.
What happens to the assets created through Capital Spending over time?
These assets may depreciate over time but are valuable in the long run.
What is the definition of Current Spending?
Current spending refers to the government’s day-to-day expenditures for maintaining operations and providing public services.
What are some examples of Current Spending?
- Salaries and wages of government employees
- Social welfare programs
- Education and healthcare spending
- Interest payments on government debt
- Operational costs of government departments
What is a key characteristic of Current Spending?
Benefits are immediate or within the current fiscal year.
What does Current Spending fund?
It funds the day-to-day operations of the government and its programs.
What is a recurring aspect of Current Spending?
These expenditures occur regularly and are necessary to maintain public services.
What is a major difference between Current Spending and Capital Spending?
Current spending does not result in the creation of long-term assets or infrastructure.
Relationship between govt spending and productivity
Increased g on infrastructure - increased geographical mobility - increased labour productivity
Relationship between govt spending and living standards
Increased g on health and education - increased st of living
Or
Increased g is a component of ad - increased rGDP - increased standard of living
Relationship between govt spending and crowding out
Increased g - discourages investment - decreased I - crowing out
Relationship between govt spending and taxes
Increased g may increase tax rate
Government spending reduces inequality from progressive taxes
Relationship between govt spending and equality
Increased g on benefits - increased equality
What does the UK government spend the most on
NHS
Benefits
Progressive tax
Higher income households pay a greater percentage of their income towards the tax
Eg. Income tax
Proportional tax
All households pay the same percentage of income towards the tax
Regressive tax
Higher income households pay a smaller percentage of their income towards the tax than lower income households do
Eg. VAT
Impact of increase in direct tax on incentive to work
Reduces after tax income - reduces incentive to work
Impact of increase in indirect tax on incentive to work
Increases cost of living - incentivises individuals to work to maintain st of living
