Government Spending

Question 1

What does the optimal level of government spending depend on ?

Answer 1

1) How equitable an economy is.
2) The level at which the Government is borrowing.
3) Where an economy is in the trade cycle.
4) How efficient markets in an economy are.

Question 2

What percentage of the ……. GDP is from government spending?

1) UK’s
2) USA’s
3) Swedens

Answer 2

1) 40%
2) 30%
3) 60%

Question 3

What are the four ways in which goods can be produced and provided?

Answer 3

1) Public sector both produces and provides the good, for example, the NHS or Defence.
2) Public Sector provide but don’t produce, for example, gov pay for roads to be built but contract the actual building to the private sector.
3) Public Sector produce but don’t provide; good run by government but consumers still have to pay for it.
4) The State is not involved. Private sector produces and provides.

Question 3

How has the size of the States role been reduced in the UK?

Answer 3

1) Privatisation
2) Outsourcing
3) Public/Private sector provision e.g. PFI’s
4) Abandonment of provision

Question 4

Arguments against Public Sector provision

Answer 4

X-inefficiency
Diseconomies of Scale
Choice is greater in the private sector
Government aren't experts in producing things
Opportunity cost

Question 5

Arguments for state provision

Answer 5

1) Economies of Scale
2) People don’t make rational decisions so the government needs to provide.
3) Private sector firms are profit maximisers, they do not think about efficiency.
4) Free Rider Problem