4.5.1 - Public Expenditure

Question 1

What Is Public Expenditure?

Answer 1

Is how the government spends its money, within the economy.

Question 2

What Are The 3 Categories Of Public Expenditure?

Answer 2

~ Capital expenditure.

~ Current expenditure.

~ Transfer payments.

Question 3

What Is Capital Expenditure?
(2 Points)

Answer 3

~ Spending on investment goods, which have long term rewards.

~ E.g. Infrastructure, hospitals and schools.

Question 4

What Is Current Expenditure?
(2 Points)

Answer 4

~ Spending on daily recurring payments, that keeps the economy functioning.

~ E.g. Supplies, wages and military personal and equipment.

Question 5

What Are Transfer Payments?
(2 Points)

Answer 5

~ Spending on things, where the government gets nothing in return.

~ E.g. Benefits payments, pensions and subsidies.

Question 6

What Are Factors Influencing Public Expenditure?
(3 Points)

Answer 6

~ Age distribution.

~ Incomes.

~ Political values.

Question 7

Describe ‘Age Distribution’ As A Factor Influencing Public Expenditure
(4 Points)

Answer 7

~ With aging populations, government have to focus spending to cater their needs, such as pensions and healthcare.

~ With a young population, governments have to focus spending to cater their needs, such as education, teachers and education material.

~ E.g. Japan faces aging populations.

~ E.g. Botswana has a young population.

Question 8

Describe ‘Incomes’ As A Factor Influencing Public Expenditure
(3 Points)

Answer 8

~ As incomes increase, demand for government goods and services increase as income is elastic, increasing public expenditure.

~ Low incomes, means low tax revenue, so low public expenditure.

~ Some public expenditure is spent on inferior goods, so as incomes increase, public expenditure decreases

Question 9

Describe ‘Political Values’ As A Factor Influencing Public Expenditure
(2 Points)

Answer 9

~ If citizens have trust in their government, they would be more likely to pay higher taxes, in exchange for higher public expenditure. Vice versa.

~ E.g. Denmark, has very high incomes taxes.

Question 10

What Will Changes In Public Expenditure Effect?
(3 Points)

Answer 10

~ Productivity and growth.

~ Living standards and equality.

~ Crowding out.

Question 11

Describe How Changes In Public Expenditure Effects ‘Productivity & Growth’
(4 Points)

Answer 11

~ Capital expenditure, such as infrastructure, health and education, improves economic growth.

~ Current expenditure, such as more medical supplies and hiring new doctors, improves productivity and human capital.

~ Depends on the quality of spending and the efficient uses with that money.

~ E.g. NHS.

Question 12

Describe How Changes In Public Expenditure Effects ‘Living Standards & Equality’
(3 Points)

Answer 12

~ Increases in welfare payments, means more incomes, improving livings standards and reducing inequality.

~ Increases in healthcare spending, means healthier workforce, increasing productivity and incomes, improving living standards and reducing inequality.

~ However, increases in military spending, doesn’t benefit poor people in need.

Question 13

Describe How Changes In Public Expenditure Effects ‘Crowding Out’
(2 Points)

Answer 13

~ When public expenditure, decreases the resources available to the private sector (Resource crowding out).

~ Increases in government borrowing, increases the demand for borrowed money, which then increases the interest rate, discouraging private from taking out loans for investment (Financial crowding out).