Public Expenditure

Question 1

What are the Types of Government Expenditure

Answer 1

Current Expenditure
Capital Expenditure
Transfer Payments

Question 2

Why is the proportion of public expenditure to GDP measured

Answer 2

To compare levels of public spending both over time and between different countries

Question 3

Define Current Expenditure

Answer 3

Government’s day-to-day expenditure on goods and services

Question 4

Define Capital Expenditure

Answer 4

Government Expenditure on infrastructure such as roads and hospitals

Question 5

Define Transfer Payments

Answer 5

Payments given by the state to individuals

Question 6

For what reason are transfer payments typically used for

Answer 6

To redistribute income

Question 7

Why are transfer payments different to other types of government expenditure

Answer 7

The government gets no goods or services in return for this expenditure

Question 8

What does Tax Base mean

Answer 8

The total value of all the income, property, etc. on which tax is charged

Question 9

Why is government spending likely to rise in a recession

Answer 9

Unemployment Benefits will rise

Expansionary fiscal policy may be used to recover from the recession

Question 10

What is likely to happen to public goods as an economy develops

Answer 10

Because public goods tend to be viewed as normal goods by voters - the higher average incomes are the more citizens tend to demand from their governments in terms of public goods and services because public goods are income elastic

Question 11

What does it mean to service a debt

Answer 11

Repaying both the principal and the interest on a debt

Question 12

Reasons for changing the size and composition of public expenditure

Answer 12

Economic Development / Rising Incomes
Changes in the structure of the population
Stage in the business cycle
Financial Crises
Levels of Government Debt

Question 13

What gets impacted due to changes in levels of public expenditure

Answer 13

Productivity
Living Standards
Taxation
Inequallity
Crowding In
Crowding Out

Question 14

What is the crowding out effect

Answer 14

When increased government spending results in lower private sector spending

Question 15

Why may crowding out occur

Answer 15

A reallocation of resources towards public sector spending when the economy is at full employment will reduce private sector spending

If the increased government spending is financed through borrowing - the increase in demand for borrowed funds may increase interest rates which will discourage private sector borrowing

Question 16

Crowding Out evaluation

Answer 16

May not occur at even full employment if government spending leads to higher economic growth as overall productive capacity of the economy is larger

Question 17

What is the crowding in effect

Answer 17

When increased government spending results in higher private sector spending

Question 18

Crowding In evaluation

Answer 18

Depends on the size of the multiplier

Government spending may be used ineffectively