Income and expenditure
After global financial crisis 2007 and 2008, the UK government implemented a huge cut in government spending in 2010 in which biggest cuts will be borne by local government. As we know, budget cut is the act of reducing budgeted expenditure, so Essex county council carried out a lot of policies to stimulate economy to recover from recession in the past 5 years. In this essay, I will reveal spending cut in Essex through three examples of government budget cuts. In the end, I will explain why government cut down budget and analysis the advantages and disadvantages about this policy. In 2010, Essex County council faced a £300 million budget deficit by 2014 and frantically tried to cut costs, and Council leader Perter …show more content…
In UK, the biggest department for public money is social security. This takes almost a quarter of all government spending (Which is shown in Map 2), (Economics 2014).
,(Map 2)
After the economic crisis in 2008, UK government was facing a government deficit. There are two ways to solve this deficit, one way is to increase the tax, another way is to cut down the government spending. As a result, the UK government choices to cut down government spending instead of rise tax. It is known that welfare occupies a major percentage of government spending. But after economic crisis, UK government aims to cut down some welfare and reduces government spending in the following years (Which is shown in Map 3).
, (Map 3)
Because of UK government cut down welfare, UK government spending as %of GDP decreased (Which are shown in Map3 and Map 4). (Map 3)
(Map …show more content…
And reducing the government spending will be a significant factor in reducing aggregate demand. This will result in a slower growth in GDP, and could even push the economy back into recession. When government is facing deficit or economy recession, they will borrow money to help the economy to recover, then government debt will increase, but if UK government cut down welfare reasonably, it might also actually rise the motivation for those people who rely on benefits to find a job and join the labour force, and this action could increase productivity actually, bring economy out of recession in a long term.
A change in aggregate demand will also lead to a much greater final effect on the level of equilibrium national income. It is known as the multiplier effect. It is the number of times a rise in national income exceeds the rise in demand that caused it. As we know the formula,
Multiplier= Real GDP/ in autonomous spending
The multiplier is the ration of the total change in real GDP to the size of that autonomous spending. The size of the multiplier depends upon household’s marginal decision to consume---called the marginal propensity to consume(MPC), or to save---called the marginal propensity to save(MPS). As we know the formula,
MPC= Consumer spending/ agg disposable income
When UK government cut spending, it will result in a butterfly effect, according to
After global financial crisis 2007 and 2008, the UK government implemented a huge cut in government spending in 2010 in which biggest cuts will be borne by local government. As we know, budget cut is the act of reducing budgeted expenditure, so Essex county council carried out a lot of policies to stimulate economy to recover from recession in the past 5 years. In this essay, I will reveal spending cut in Essex through three examples of government budget cuts. In the end, I will explain why government cut down budget and analysis the advantages and disadvantages about this policy. In 2010, Essex County council faced a £300 million budget deficit by 2014 and frantically tried to cut costs, and Council leader Perter …show more content…
In UK, the biggest department for public money is social security. This takes almost a quarter of all government spending (Which is shown in Map 2), (Economics 2014).
,(Map 2)
After the economic crisis in 2008, UK government was facing a government deficit. There are two ways to solve this deficit, one way is to increase the tax, another way is to cut down the government spending. As a result, the UK government choices to cut down government spending instead of rise tax. It is known that welfare occupies a major percentage of government spending. But after economic crisis, UK government aims to cut down some welfare and reduces government spending in the following years (Which is shown in Map 3).
, (Map 3)
Because of UK government cut down welfare, UK government spending as %of GDP decreased (Which are shown in Map3 and Map 4). (Map 3)
(Map …show more content…
And reducing the government spending will be a significant factor in reducing aggregate demand. This will result in a slower growth in GDP, and could even push the economy back into recession. When government is facing deficit or economy recession, they will borrow money to help the economy to recover, then government debt will increase, but if UK government cut down welfare reasonably, it might also actually rise the motivation for those people who rely on benefits to find a job and join the labour force, and this action could increase productivity actually, bring economy out of recession in a long term.
A change in aggregate demand will also lead to a much greater final effect on the level of equilibrium national income. It is known as the multiplier effect. It is the number of times a rise in national income exceeds the rise in demand that caused it. As we know the formula,
Multiplier= Real GDP/ in autonomous spending
The multiplier is the ration of the total change in real GDP to the size of that autonomous spending. The size of the multiplier depends upon household’s marginal decision to consume---called the marginal propensity to consume(MPC), or to save---called the marginal propensity to save(MPS). As we know the formula,
MPC= Consumer spending/ agg disposable income
When UK government cut spending, it will result in a butterfly effect, according to