Topic 10- Public expenditure

Question 1

Public expenditure

Answer 1

Relates to expenditure by central governments, local authorities and public-sector organisations.

Question 2

three elements of public expenditure

Answer 2

• Current expenditure: give day-to-day expenditure on goods e.g wages&salaries of anyone employed directly by the stage e.g doctors
• Capital expenditure: Long-term investment expenditure on capital projects such as cross rail or new school
• Transfer payments: payments made by the state to individuals without there being any exchange of goods or services e.g Job seekers allowance to unemployed.

Question 3

The size of the public expenditure

Factors affecting the size of public expenditure

Answer 3

• the level of GDP
• Demand for public services
• Size and age distribution of the population
• The state of the economy
• Discretionary fiscal policy
• Debt interest
• The rate of inflation
• Political factors

Question 4

The size of the public expenditure
Factors affecting the size of public expenditure:
-the level of GDP
-Demand for public services

Answer 4

-the level of GDP:
In the LR, the amount that the gov can spend depends on the amount that it can raise in taxation which depends on the level of GDP In SR the gov can borrow to finance an excess of public expenditure
-Demand for public services:
Demand for many public services e.g health and education is income elastic>as income rises demand for these services rises more than proportionally

Question 5

The size of the public expenditure
Factors affecting the size of public expenditure:-Size and age distribution of the population
-The state of the economy

Answer 5

• population rising>an increase in public expenditure. An ageing population also also places a greater burden on the state as demand for medical services and social services increases &expenditure on benefit payments (e.g state pensions) ^
• Recession: Public expenditure likely to rise because of automatic stabilisers as expenditure on job seekers allowance ^

Question 6

The size of the public expenditure:
Factors affecting the size of public expenditure:
-Discretionary fiscal policy
-Debt interest

Answer 6

-

-If national debt increases gov will be paying large amounts of interest payments> public expenditure will increase

Question 7

The size of the public expenditure:
Factors affecting the size of public expenditure:
-The rate of inflation
-political factors

Answer 7

-Public expenditure will increase during periods of inflation