a) Influences on government expenditure

a) the main influences on government expenditure: the trade cycle, fiscal policy

the trade cycle

• contractions and troughs → economic decline

• higher unemployment rate + lower incomes

• higher unemployment benefit payments

• higher expenditure (to stimulate demand + to reduce unemployment)

+

• expansions and peaks → economic growth

• lower unemployment rate + higher incomes

• lower expenditure (to reduce demand → to reduce inflation)

fiscal policy

• fiscal policy → determines where tax revenue is allocated

• dictates higher expenditure in certain areas