Public Expenditure

Question 1

Capital Expenditure

Answer 1

Long term investment on capital projects. Main focus is expanding the LRAS

Question 2

Current expenditure

Answer 2

Day to day spending on output

Question 3

Transfer payments

Answer 3

Payments made to people without any output generated

Question 4

Factors that change public spending metrics

Answer 4

Income
Age distribution
Expectations
Business cycle
Interest on national debt
The rate of inflation
Political priorities
State of global economy

Question 5

Impacts of high PubEx on Productivity and Growth

Answer 5

Improves infrastructure, attracting investment and increased output and growth. BUT absence of profit motive could lead to X inefficiency as govt hoarding also limits access to more efficient private sector.

Question 6

Impacts of high PubEx on Living Standards

Answer 6

Better access to merit goods. BUT needs funding via tax or increasing national debt. Could create inter-generational equity problems.

Question 7

Impacts of high PubEx on Crowding Out

Answer 7

Govt invests and hoards resources, crowding out priv sector firms.
Govt borrows money and creates bonds. If more money goes to bonds, less money goes to businesses, limiting growth.

Question 8

Impacts of high PubEx on Taxation

Answer 8

Higher spending means future tax increases

Question 9

Impacts of high PubEx on Equality

Answer 9

Equality increases, as more transfer payments received. This guards against absolute poverty.
Better education investment means higher skilled workers and increased incomes.