Public expenditure Flashcards
human capital
The level of skill and knowledge in a population is known as human capital .
What is capital expenditure?
Capital expenditure is what the government spends on long-term assets, like hospitals, which have long-term rewards i.e. anything that the government expects to get some form of return or benefit from in the years to come.
What is current expenditure?
Current expenditure is what the government spends on recurring costs i.e. things that you need to keep spending money on. This could include wages or raw materials.
Which of the following is an example of a transfer payment?
A transfer payment is when the government spends money without getting anything in return. When the government pays benefits, it is not getting anything in return.
- Capital Expenditure
Government spending on assets with a long-term return e.g. hospitals
- Current Expenditure
Government spending on recurring costs e.g. wages
- Transfer Payments
Government spending for which nothing is received in return e.g. benefits
A government increases spending on foreign aid and wages for public sector workers. How is this likely to be shown in their accounts ?
Current expenditure is what the government spends on recurring costs, e.g. wages and raw materials. They are increasing spending on public sector wages (teachers, nurses, soldiers etc.), so current expenditure will increase.
A transfer payment is when the government spends money without getting anything in return, e.g. benefits and foreign aid. Nothing is received in return for foreign aid, so this will be a transfer payment
Which part of AD does benefits come tru
consumption, not gov’t spendingf
Adolph Wagner found that an increase in incomes was accompanied by an even larger increase in the demand for government goods and services. This suggests that public expenditure is:
Wagner found that an increase in incomes led to an even larger increase in demand for public services. This meant that demand was very responsive to changes in income - it is income elastic.
Which of these public services are likely to be inferior? Select all that apply.
An inferior good is one where demand falls as incomes increase. As people get richer, they might demand less public transport, because they can afford their own car. Or, as people get richer they might demand less government education because they can afford to send their children to private school.
Wagner’s Law
Wagner’s Law states that demand for public sector goods is income elastic and so an increase in incomes will lead to an even bigger increase in public expenditure.
Limitations to wagners law
Some public sector goods are inferior goods, which means that an increase in incomes will lead to a decrease in demand for public goods. There will therefore be a decrease in public good expenditure.
Which of the combinations above shows the most likely impact of a change in direct and indirect taxes on the level of Foreign Direct Investment?
Some chains of reasoning for you:
Increase in direct taxes → Managers and CEOs keep less of their incomes → FDI decreases
Increase in indirect taxes → Goods and services more expensive → Companies make less profit → Less FDI
How is an ageing population likely to affect public expenditure ?
Current expenditure is what the government spends on recurring costs, e.g. wages and raw materials. An ageing population will mean that the government needs to spend more on healthcare (e.g. medicine and nurses wages), so current expenditure will increase.
A transfer payment is when the government spends money without getting anything in return, e.g. benefits and foreign aid. Nothing is received in return for pensions, so this will be a transfer payment. An ageing population will mean more money is spent on pensions.
