Public Expenditure

Question 1

Capital expenditure

Answer 1

spending on infrastructure that is consumed in the long term

Question 2

Current expenditure

Answer 2

Day to day operational and administrative expenses like providing public services, or interest on the debt

Question 3

Transfer Payments

Answer 3

Benefits, pensions

Question 4

What is healthcare spending

Answer 4

20%

Question 5

What is debt interest spending

Answer 5

10%

Question 6

What is educations spending

Answer 6

11%

Question 7

What is the relation between income and government spending

Answer 7

The lower the average income in a country the lower the percentage of GDP is spent by the government because poorer countries have lower tax revenue

Question 8

Why do poorer countries have lower tax revenue

Answer 8

• Avoidance
• Corruption in government
• Inefficient collection systems
• Smaller amount of wealth and incomes to tax

Question 9

Why are there differences in the sizes go government spending in high income developed countries

Answer 9

Differences in systems and attitudes like UK as very high government spending due to the NHS but the US has more of a self help attitude

Question 10

What can lead to sudden very large increases in government spending

Answer 10

Global financial crisis and economic shocks

Question 11

What has the UK been following since 2010 and why

Answer 11

Policies of austerity to try and reduce the debt, gov spending can change depending of gov aims

Question 12

How can demographic factors affect government spending

Answer 12

An ageing population like in Japan can mean that government spending will increase greatly to pay for pension schemes

Question 13

How can Government spending levels impact Productivity and growth

Answer 13

• Free market argues it negatively impacts this
• Infrastructure improves efficiency
• human capital is improved through healthcare, education, training programs making workforce ore productive
• spending on R and D that private sector can’t afford helps improve long term growth
• Gov spending helps decrease unemployment which helps growth and then creates multiplier as these people can now spend and increase growth more

Question 14

How can Government spending impact living standards

Answer 14

• corrects market failure in providing public goods which improves social welfare
• benefits and provision of basic goods eliminates absolute poverty
• Can have a distinctive on workers to work hard as they a freely given many things like benefits so negatively impacts living standards
• principal agent problem as they make decisions on behalf of people who mayhave spent it differently

Question 15

explanation of crowding out

Answer 15

• To increase spending government must essentially borrow from the private sector
• This causes higher interest rates as the government want to sell their debt to the private sector
• This discourages private sector investment and spending
• Government will also increase taxes

Question 16

What is the main point and conclusion of crowding out theory

Answer 16

Less resources available for private sector spending and investment as a result of government spending increasing so AD falls and economy doesn’t grow.

Question 17

Criticisms of crowding out theory

Answer 17

• Crowding in
• multiplier effect, that gov spending will cause more spending in the private sector
• external finance can be raised internationally
• probability of 100% crowding out is almost impossible

Question 18

What is crowding in theory

Answer 18

Keynesian argument that increasing government spending raises peoples confidence as they follow the gov example so AD actually increases, more effective when unemployment is high

Question 19

How does gov spending impact levels of taxation

Answer 19

When government spending is high then text must be high as to not create huge amounts of debt
–> in oil rich countries revenue from oil can pay for most government spending

Question 20

How does government spending impact equality

Answer 20

Should increase equality as it performs the redistribution of wealth and ensures all people can access basic goods to maintain a minimum standard of living