LS15 - Types of Public Expenditure

Question 1

what is the proportion of public expenditure to GDP?

Answer 1

• a measure used to compare levels of public spending both over time and between different countries

Question 2

current expenditure

Answer 2

government’s day-to-day expenditure on goods and services
e.g. NHS drugs, civil servants wages

Question 3

capital expenditure

Answer 3

gov expenditure on infrastructure such as roads/hospitals - stuff that you own and build for years

Question 4

transfer payments

Answer 4

• payments given to state by individuals e.g. state pensions/benefits
• payments typically redistribute income
• gov gets no goods/services in return for expenditure

Question 5

reasons for changing size and composition of government expenditure

Answer 5

• econ development/rising income - higher tax revenue and better infrastructure
• changes in in structure of population - e.g. if older more pensions/ more immigrants more benefits
• change in business cycle - in boom, more tax revenue, recession more benefits
• levels of gov debt - high debt, spend more on repayment then public services
• financial crisis - more on unemployment benefits, less tax revenue, more structural unemployment - needs to be retrained

Question 6

impacts of public expenditure

Answer 6

• as spending increases so does productivity causes GDP & economic growth to rise
• so living standards rise
• taxes rise as growth/spending/living standards does

Question 7

primary sector

Answer 7

extraction of raw materials e.g. oil

Question 8

secondary sector

Answer 8

manufacturing

Question 9

tertiary sector

Answer 9

service industry which facilitates the transport , distribution and sales of goods produced in the secondary sector e.g. tourism

Question 10

crowding out

Answer 10

when increased government spending results in lower private sector spending

Question 11

why does crowding out occur?

Answer 11

• a reallocation of resources towards public sector spending when the economy is at full employment will reduce private sector spending
• if the increased gov spending is financed through borrowing it may increase interest rate due to increased demand for borrowed funds - discourages private sector borrowing for consumption and investment

Question 12

evaluation of crowding out

Answer 12

may not occur even at full employment if government spending leads to higher economic growth as overall productive capacity of the economy is hugher

Question 13

crowding in

Answer 13

when increased gov spending results in higher private sector spending

Question 14

evaluation of crowding in

Answer 14

depends on the size of the multiplier, government spending may be used ineffectively