Public expenditure 4.5.1

Question 1

Current government expenditure

Answer 1

governments day to day expenditure on goods and services. Eg wages of civil servants and drugs used by NHS

Question 2

Capital government expenditure

Answer 2

government expenditure on infrastructure such as roads and hospitals

Question 3

Transfer payments

Answer 3

payments given by the state to individuals, eg pensions

Question 4

Reasons for changing size and composition of public expenditure

Answer 4

• Economic development/ rising incomes
• Changes in the structure of the population
• Stage in the business cycle
• Financial crises
• Levels of government

Question 5

Impacts of changes in levels of public expenditure

Answer 5

• Productivity
• Living standards
• Taxation
• Inequality
• Crowding out
• Crowding in

Question 6

Productivity + Growth

Answer 6

● Free market argue gov spending is ​wasteful + inefficient
However, gov able to enjoy ​EoS when it provides goods, and this improves productivity.
● also provide ​infrastructure​, such as roads, necessary for economy to run efficiently.
● Education creates ​human capital necessary for growth whilst healthcare system reduces number of days workers lose from ​serious illness​. Spending on research and development may not be done by the private sector and the government will undertake it to give businesses a long term competitive edge.
● Through spending, the government can create a ​multiplier effect and this can be focused on areas of the country with high unemployment, creating growth

Question 7

Living standards

Answer 7

• correct market failure and provide public goods to improve social welfare
• important to reduce absolute poverty
• health levels and infrastructure

Question 8

Crowding out

Answer 8

● to spend money above tax revenues, gov has to ​borrow from individuals + businesse​s. But, amount of money in economy available to borrow doesn’t increase. gov will therefore be competing with private sector for finance and cause ​higher IR​. will discourage firms from investing and individuals from buying on credit
- limited number of resources in economy means that for every resource used in gov spending, less for private sector, crowding out private sector borrowing and investment.

Question 9

Levels of taxation

Answer 9

● In most cases, where government spending is high, ​levels of tax must be high in order for spending to be sustainable. High levels of tax may have a disincentive effect.
● Oil-rich countries tend to be an exception, where revenue from oil can pay for most of government spending

Question 10

Equality

Answer 10

● Spending should ​increase equality as it leads to redistribution and helps to provide a ​minimum standard of living for the poorest in society. It ensures everyone has access to ​basic goods​, such as education and healthcare, which will help to give them a fair start in life.