Public Expenditure

Question 1

What are the three types of expenditure?

Answer 1

capital expenditure
current expenditure
transfer payments

Question 2

Capital expenditure

Answer 2

government spending on long-term assets with long-term benefits e.g hospitals

Question 3

Current expenditure

Answer 3

government spending on recurring costs e.g wages or raw materials

Question 4

Transfer payments

Answer 4

government spending without receiving any goods or services in return e.g benefits

Question 5

What is the difference between public expenditure and government spending in the AD formula?

Answer 5

government spending does not account for transfer payments

Question 6

What are the factors influencing public expenditure?

Answer 6

age distribution
incomes
political values

Question 7

Age distribution

Answer 7

aged populations - money spent on pensions and healthcare
young populations - money spent on education

Question 8

Incomes

Answer 8

public expenditure - income elastic
as incomes increase, demand for government goods and services increases, thus public expenditure increases
(Wagner’s law)

Question 9

Political values

Answer 9

if people trust the government, they are more likely to vote for politicians who promise high taxes and high public expenditure
(and vice versa)

Question 10

Why is Wagner’s law not always true?

Answer 10

as incomes increase, demand for some government goods and services decrease
e.g less demand for public transport if people have own car
(INFERIOR GOODS)