4.5 Role of the state on macroeconomy

Question 1

government spending in the UK?

Answer 1

• total spending £1200 billion, £17,000 per person
• 1/4 is on social security (benefits/ pensions)
• 2/3 on public services

Question 2

what is capital spending?

Question 3

how is government spending split?

Answer 3

into two categories based on whether the money is spent on an asset that last (new buildings) or is spent on thing that are used up (salaries of civil servants)

Question 4

examples of current spending?

Answer 4

• salaries of NHS employees
• drug use in the NHS
• road maintenance budget
• army supplies

Question 5

examples of capital spending?

Answer 5

• construction of new motorways + bridges
• equipment fro the NHS
• flood defence systems

Question 6

significance of govt spending?

Answer 6

• a key component of AD
• can have regional impact ➡️ spending on regional infrastructure projects
• important in providing public and merit goods
• help achieve greater equity in society

Question 7

how can govt spending directly impact household incomes?

Answer 7

• universal child benefits
• unemployment benefit
• public state pensions
• targeted welfare payments

Question 8

how can govt spending less directly impact household incomes?

Answer 8

• education, reduces income inequality
• health care
• social housing eg provided by local authorities
• employment training

Question 9

what are the justifications of government spending?

Answer 9

to provide
- a socially efficient level of public goods and merit goods to overcome market failure ➡️ improved education, health, housing can help improve human capital and raise productivity
- a safety-net system of welfare to supplement the incomes of the poorest in society
- necessary infrastructure via capital spending
- to manage the level and growth of AD
- promoting equity

Question 10

whats the free market agenda on the Size of Government?

Answer 10

• free market economists are sceptical of the impact of govt spending