Theme 4:4.5.1:Public expenditure

Question 1

types of public expenditure

Answer 1

-capital
-cuurent
-transfer payments

Question 2

capital gov expenditure

Answer 2

spending on investment goods e.g. roads,schools hospitals

Question 3

transfer payments

Answer 3

spending of welfare payments e.g.benefits, pensions

Question 4

current gov expenditure

Answer 4

payments of general gov consumption plus transfer payments plus interest payments

Question 5

gov expenditure for healthcare, education.pensions

Answer 5

healthcare 18%
education 12%
pensions 20%

Question 6

reasons for changing size and composition of public expenditure globally.

Answer 6

ageing populations-Europe and Japan-increased need for pensions

LICS-low incomes-lower tax revenue-less gov exp

diffferent attitudes-USA spend less on state exp as a highly developed country

global financial crisis-higher need for welfare payments-increased gov exp

Question 7

what does public expenditure have an impact on?

Answer 7

productivity and growth
living standards
crowding out
level of taxation
equality

Question 8

cons of public exp on productivity and growth

Answer 8

free market economists argue that gov exp causes inefficiency and is a waste of resources

Question 9

pros of public exp on productivity and growth

Answer 9

gov can benefit from economies of scale

provide infrastructure which is essential for economy to run efficiently

education increases human capital

healthcare reduces days of work missed due to illness

Question 10

pros of public exp on living standards

Answer 10

-corrects market failure and provides public goods

-reduces absolute poverty-benefits
and provision of basic goods

Question 11

cons of public exp on living standards

Answer 11

-gov allocate goods and services inefficiently and can also be a disincentive to workers

-suffer a principle agent problem as gov decides for people who may have spent the money differently

Question 12

pros of public exp on crowding out

Answer 12

Government is borrowing money, which crowds them out of the market.
When the government borrows a lot of money, interest rates might increase.
This discourages spending and investment among the private sector.
This reduction in private sector investment is the ‘crowding out’ of

Question 13

cons of public exp on crowding out

Question 14

public expenditure and the level of taxation

Answer 14

high exp means there’s a high level of taxation
can be a disincentive
exception is oil countries as oil revenue can fund public expenditure

Question 15

public expenditure and equality

Answer 15

more exp the more equality