2.2.4 Government expenditure (G)

Question 1

What are the influences of government expenditure?

Answer 1

• The trade cycle
• Policy aims e.g. Fiscal policy

Question 2

What is the influence of the trade cycle on government expenditure?

Answer 2

• With a booming economy, unemployment decreases, leading to a lower level of means-tested benefit payments (government expenditure decreases).
• When the economy is in a slump, unemployment increases, leading to a higher level of means-tested benefit payments (government expenditure increases).
• With a booming economy, tax revenue increases and can be used to pay back government debt or increase expenditure on public/merit goods.
• When the economy is in a slump, tax revenue decreases and it may be harder to pay back government debt or spend on public/merit goods.

Question 3

What is the influence of policy aims on government expenditure?

Answer 3

• Fiscal Policy is set once a year and announced during the presentation of the government’s budget.
• Expenditure is directly related to the government’s objectives and policy aims.