Government Spending and Net Exports

Question 1

What are Levels of Government spending affected by?

Answer 1

• Policy Commitments (use of fiscal policy to achieve objectives).
• The government in power.
• Stage in business cycle.

Question 2

Key facts from the Autumn Budget 2024 about spending:

Answer 2

• The public sector raises money in order to spend it. In 2024-25, there is an expectation of public spending to amount to 1226 billion pounds (42,000 per household).
• Expectations of government departments to spend 430.2 billion on running costs of public services, grants, and administration. Main priorities are health, education, and defence.

Question 3

What are the factors affecting Net Trade?

Answer 3

• Level of real income.
• Exchange rate.
• Quality and other non-price factors.
• Economic performance of other countries.
• Protectionism.

Question 4

What are the demand side shocks that cause sudden, large changes in AD?

Answer 4

• Recession in one or more of our trading partners.
• A big rise or fall in the exchange rate.
• Housing market slumps.
• Share prices collapse.
• Events like the Financial crisis.
• Unexpected cuts or rises in interest rates and tax.