4.5.1 Flashcards
what is capital expenditure?
government spending on long term investments and assets that are expected to provide benefits over multiple years
eg: infrastructure, investment in education healthcare
what is current expenditure?
day to day government spending on recurring items such as salaries, maintenace and operational costs
NHS, Schools, welfare programs
what are transfer payments?
government payments made to indiviuals/ groups without any expectation of return
social welfare payments, foreign ais, local gov grants
what are the main reasons for changes in public expenditure (size and composition)?
- economic conditions- downturns/ booms
- chnaging demographics- aging population means might spend more on healthcare and pensions
- deficits
- political ideologies
how does the percentage of public expenditure of GDP affect productivity and growth?
Higher levels of capital public expenditure on investments like education, healthcare, and infrastructure can enhance human capital and physical capital, thereby contributing to productivity and long-term economic growth.
how does the percentage of public expenditure of GDP affect living standards?
Public expenditure on welfare programs, healthcare, and education can improve living standards by providing essential services and social safety nets
how does the percentage of public expenditure of GDP affect crowding out?
what is financial crowding out?
When government borrowing (e.g., issuing bonds to fund spending) outward shift in demand for money, drives up interest rates, making it harder for businesses and households to access loans. This reduces private investment and consumption.
what is resource crowding out?
When government spending diverts factors of production away from the private sector, causing shortages or higher costs.
how does the percentage of public expenditure of GDP affect level of taxation?
The level of public expenditure is often linked to taxation policies. Higher public expenditure may require higher taxes, which can impact disposable income and economic incentives.
how does the percentage of public expenditure of GDP affect equality?
Public expenditure can reduce income inequality by providing social support to disadvantaged groups and funding education and healthcare accessible to all citizens.
