2c. Government expenditure

Reasons for government spending

One way the government intervenes is by spending money on a wide variety of goods and services. For example, public goods such as defence and the judiciary or merit goods such as education and healthcare. The level to which governments intervene in this way is down to how much of a free market or mixed market economy they are.

Budgets

Government announcements about changes in spending are made in budgets.

Changes in government spending reflect changing priorities about how to spend money. Higher government spending can boost total spending and so affect variables such as unemployment and inflation.

Government spending can be greater than government receipts such as taxation. When this happens there will be a budget deficit. When government spending is less than government receipts such as taxation, there will be a budget surplus.

Deficit and debt

The UK deficit is a result of government spending being higher than taxes. Often known as the fiscal deficit or budget deficit

The UK debt is an accumulation of all these deficits over time

Current account deficit - Imports are higher than exports

Fiscal deficit - Spending is higher than tax receipts