2.2.4 Government spending

o Real output increases when there are periods of economic growth. This is the

recovery stage.

o The boom is when economic growth is fast, and it could be inflationary or

unsustainable.

o During recessions, there real output in the economy falls, and there is negative

economic growth.

o During recessions, governments might increase spending to try and stimulate the

economy. This could involve spending on welfare payments to help people who have

lost their jobs, or cutting taxes.

o This will increase the government deficit, and they may have to finance this.

o During periods of economic growth, governments may receive more tax revenue

since consumers will be spending more and earning more. They may decide to spend

less, since the economy does not need stimulating, and fewer people will be

claiming benefits.