CHANGING BENEFITS Flashcards
WHAT are benefits
Bursary or sum of money payed by the government for people who have recently lost their job or are actively seeking one.
Does spending on benefits increase government spending
No , because they are not exactly spending money on the economy they are just transferring the money into households.
What happens when there is an expansionary policy on benefits ?
Means more money is transferred to unemployed workers, this increases consumption which increases AD, which also increases benefits to help reduce income inequality . This leads to the multiplier effect!
Evaluation point for increasing benefits.
Disincentive for the unemployed people to find a job because they earn more by claiming benefits (benefits trap )
What happens when gov lower the benefits.
Increase income inequality and decrease consumption as the unemployed have less disposable income meaning they spend less overall. However, you will see an increase in number of people outside the benefits trap!
Name an evaluation point for an decrease in spending for benefits
Downward multiplier effect , poor households have less to spend so consumption falls which decreases AD. Also income inequality will worsen as the poor get poorer.
