Role Of The State In Macroeconomy - Public Spending Flashcards
What is public spending
Fiscal policy
Categories of spending (3)
Capital spending
Current spending
Transfer payments
Categories of spending - capital spending (3)
Shifts LRAS
HS2 = infrastructure
Contributes to economic growth and productivity
Category if spending - current spending (5)
Short term day to day spending on recurring items = salaries
Shifts SRAS or AD
Wages of public sector = nurses, ministers etc
Maintains existing level of public services + does not typically contribute directly to long-term economic growth
Category of spending - transfer payment (3)
Income redistribution = tax
Subsidies + welfare payments
Made to individuals and aim is to provide support
Why size of public spending changes (5+)
Population increases and demographic = more old than young which means increased spending on pensions, healthcare (dementia increases) and there’s less workers
Economic conditions = increase GS during recession
Gov objectives
Political ideologies
State of political economy = corruption changes GS across countries
Different levels of GS as Prop. Of GDP = productivity and growth (3)
Ireland and Scotland = devolved governments = make own spending patterns
Scotland spends more on Perscriptions (free to all) and universities
They believe in long run = increase productivity and growth
Evaluation of free perscriptions in Scotland (3)
System is abused = negative externality
Alcohol tax introduced in Scotland = minimum price
Tells us alcohol consumption is way to high so gov spending isn’t helping
Problem with increased spending on healthcare - Scotland
Cannot improve infrastructure = geographic immobility = vast majority of Scotland is in highlands
How to manage standard of living (3)
HDI = human development index
MEW = measure of economic welfare
GDP per capita, life expectancy, literacy rates, etc
Different levels of GS as Prop. Of GDP - living standards
Ours will be worse than parents becuase increase house prices
Different levels of GS as Prop. Of GDP - Crowding out (3)
Education = 95% gov and 5% private
Excessive spending = loans + debt increases = IR increase
Increased IR = 5% = highest been 10 years /p= less investment
Different levels of GS as Prop. Of GDP = level of tax (2+)
Tax rate increase to fund increased gov spending
Increases inequality and reduced AD + EG
Different levels of GS as Prop. Of GDP = equality (4)
GS should increase equality = social support + education
Gov targets education to promote equality:
After covid 1/3 children didn’t return to school
9 million are economically inactive in uk
