Determinants of Government Expenditure Flashcards
Define Government Expenditure?
money spent by government on public goods and services
What does government expenditure only include?
only includes money that directly contributes to the output of the economy - transfers of money from one sector to another e.g unemployed to employoyed
Give 3 examples of G
1) Health care spending on NHS
2) paying for state schools
3) paying for roads
What factors may influence G?
- level of economic activity
- War or rising crime
- state of nations finance
When does market failure occur?
when free market does not allocate countries resources correctly
What happens when markets do not work efficiently? give an example
-government intervention is required e.g free market schooling would mean many people would not attend as they could not afford it.
What does the government act as in the economy?
A stabiliser
What do the government do if economy is in recession?
government may spend more money to get the economy out of recession e.g building new moterways
What do the government do if economy is in boom?
spend less as free market naturally create demand in economy
What happens to tax revenue in a boom? What happens to tax revenue in recession?
in a boom tax revenue tends to be much higher as more is being spent by consumers
in recession the opposite happens
How may government find extra income?
needs extra spending in recession - government has to borrow money
What happens if G is higher than tax revenue?
government runs into budget deficit
What happens If G is lower than tax revenue?
government runs into a budget surplus
What happens if the government run into a budget deficit for a few years?
creates National Debt
Why may government choose not to spend money?
Because they are worried they can not afford it and worried about national debt
