Government spending

Question 1

If government spending increases how does it affect Inflation

Answer 1

An increase in governement spending means that government may decide to spend more in public sector, such as schools. This means that number of jobs will increase as more teachers are needed. Disposable income increases therefore the demand for goods and services rises so inflation increases.

Question 2

If government spending increases how does it affect unemployment

Answer 2

If government increases spending, then they could spend more in welfare benefits, therefore quality of life for people unemployed will increase as they will have a higher disposable income and so be able to afford more goods.

Question 3

If government spending increases how does it affect balance of payment

Answer 3

If governement increases spending then they might spend more on subsidies and give to firms, therefore firms will increase production of goods and so export more goods. This leads to a positive BOP.

Question 4

If government spending increases how does it affect economic growth

Answer 4

The governement may decide to spend on public sector such as healthcare, therefore workers will recieve a better healthcare. This means that productivity of workers will increase therefore there will be an increase in production of goods and services which leads to economic growth.

Question 5

What is the evaluation point/counter arguement, for when the government spending increases how does it affect Inflation?

Answer 5

There will be an increase in workers leading to an increase in disposable income although the workers may decide not to spend and therefore save their money. This means that demand for goods and services might not go up and so inflation might not increase.

Question 6

What is the evaluation point/counter arguement, for when the government spending increases how does it affect growth/bop.

Answer 6

There is no gurantee firms will use the subsidy to invest.

Question 7

What is the evaluation point/counter arguement, for when the government spending increases how does it affect unemployment.

Answer 7

If government increases spending, then they could spend more in welfare benefits so unemployment increases as more benefits so there is less incentive to work, this is called unemployment trap when people decide not to work due to welfare benefits.

Question 8

What are the 4 macroeconomic objectives

Answer 8

BIGU

BOP
INFLATION LOW
GROWTH
UNEMPLOYMENT LOW