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16 Cards in this Set
- Front
- Back
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Public expenditure |
Spending by the government |
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Three types of government spending |
-capital expenditure -current expenditure -transfer payments |
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Capital expenditure |
Also known as public sector investment, long term investment projects eg hospital or infrastructure |
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Current expenditure |
Day to day spending on goods and services eg NHS staff wages |
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Transfer payments |
Payments to individuals to redistribute income eg benefits |
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Explain three drawbacks of public spending |
-national debt -low productivity as public sector is inefficient -crowding out-when extra government spending leads to lower private sector spending •resource crowding out is when public sector takes all eg jobs for nurses and leaves private firms struggling to employ •financial crowding out is when the government borrows money demand for loanable funds increases which pushes up interest rates and reduces priavte sector incentive to invest |
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5 benefits of high public spending and evaluation of them all |
-can increase productive potential if spent on education roads etc. HOWEVER could be spent on wrong industries -injection into circular flow, increased AD. HOWEVER usually borrowed money which adds to national debt -increased labour productivity if spent on healthcare, education HOWEVER not if on benefits, makes people more careless about job -greater income equality if spent on benefits HOWEVER gov could be cutting corporation tax at same time -correcting market failure HOWEVER government failure |
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Explain the backward bending labour supply curve |
As wage rates increase people will substitute leisure for work as they can earn more money. However once it reaches a point of having lots of money, when wage rates increase they will actually be disincentivised to work as they can afford not to |
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6 effects of a change in DIRECT tax rates |
-incentives to work change -tax revenue changes -income distribution -real output, price level and employment change -trade balance due to changes in imports -FDI flows change |
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The laffer curve |
At low levels of taxation, tax revenues will increase if tax rates are increased however it reaches a point where when tax rate is increased tax revenue decreases because people/firms have more incentive to avoid paying it or move abroad |
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Automatic stabilisers |
Some firms of government expenditure and revenue from taxes change automatically and in line with changes in GDP and the state of the economy, eg in a recession benefits naturally increase |
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Discretionary fiscal policy |
Changes in taxes and public expenditure designed to achieve the governments macroeconomic objectives |
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Distinguish between a fiscal deficit and national debt |
A fiscal deficit occurs when expenditure is greater than tax revenue whereas national debt is the accumulative total of past government budget deficits |
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Distinguish between a structural and cyclical deficit |
Cyclical deficits occur because government spending and revenue fluctuates through the trade cycle whereas a structural deficit is the size of the deficit when the economy is acting at a normal and stable level of output and employment |
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6 factors influencing the size of a budget deficit |
-position in trade cycle -demographic pressures -discretionary fiscal policy -debt interest repayments -high levels of tax avoidance -high levels of income and wealth inequality |
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Three reasons why national debt is/isn’t a concern |
-causes inter generational inequality -impact on FDI, government will sell off assets cheap to attain foreign money to pay back loans -inflation ~if inflation is increasing the real value of debt will be falling ~debt is necessary to bring out of recession ~debt increases productive potential which will pay itself off |
