ILO:
a) The main influences on government expenditure:
o the trade cycle
o fiscal policy
a) The main influences on government expenditure:
o the trade cycle
o fiscal policy
Government Expenditure
Government spending is by central and local government on goods and services.
How could Govt expenditure impact the macro economy and therefore macro economic objectives:
> AD (G component of AD)
> SRAS
> LRAS
How will debt interest impact the macro economy?
How could Govt expenditure impact the macro economy and therefore macro economic objectives:
> AD (G component of AD)
> SRAS
> LRAS
How will debt interest impact the macro economy?
Influences on government expenditure
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Trade cycle:
How the economy tends to exhibit recurring trends in economic growth rates. Booms tend to be followed by economic slumps or slowdowns, which tend to be followed by recession, before the economy moves into the recovery phase, and then back into a boom. In a boom period there tends to be: • high rates of economic growth • low rates of unemployment • demand-pull inflationary pressures • high consumer and business confidence • improving government budget balance |
How will government expenditure be effected during a boom and a recession.
Especially in reference to means tested benefits. |
Fiscal Policy:
The government may choose to change the level of government expenditure as part of its fiscal policy to encourage trend growth.
Budget position:
The government may choose to change the level of government expenditure as part of its fiscal policy to encourage trend growth.
Budget position:
Public sector net debt as a percentage of GDP, 1975/76 to 2012/13
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The crisis
The crisis The 2008 financial crisis led the UK government to bail out British banks at an estimated cost of £141bn, with exposure to liabilities of over £1 trillion.8 This unprecedented state intervention was undertaken to prevent a collapse of the British banking system. At the same time, the government began a £31bn stimulus effort, which included reducing VAT, bringing forward capital spending on schools and social housing, and deferring an increase in corporation tax. The stimulus programme lasted until 2010; during that time, incomes grew fastest for the poorest fifth of the population (at 3.4 per cent) and slowest for the richest two-fifths (at 0.3 per cent). |
Austerity measures
Since 2010, austerity – primarily in the form of deep spending cuts with comparatively small increases in tax10 – has been the UK government’s dominant fiscal policy, with far fewer measures to stimulate the economy. The stated aim of austerity was to reduce the deficit in the UK to give confidence to the markets and therefore deliver growth to the economy. While austerity measures have had some impact on reducing the deficit, they have delivered little growth, and public debt has risen from 56.6 per cent of GDP in July 200911 to 90 per cent of GDP (£1.39 trillion) in 2013.12 The policies have also had far-reaching impacts on the poorest people in the UK. In 2010, the Conservative-Liberal Democrat coalition government announced the biggest cuts to state spending since the Second World War,13 including significant cuts to social security and the planned loss of 900,000 public sector jobs between 2011 and 2018.14
https://www.oxfam.org/sites/www.oxfam.org/files/cs-true-cost-austerity-inequality-uk-120913-en.pdf
Since 2010, austerity – primarily in the form of deep spending cuts with comparatively small increases in tax10 – has been the UK government’s dominant fiscal policy, with far fewer measures to stimulate the economy. The stated aim of austerity was to reduce the deficit in the UK to give confidence to the markets and therefore deliver growth to the economy. While austerity measures have had some impact on reducing the deficit, they have delivered little growth, and public debt has risen from 56.6 per cent of GDP in July 200911 to 90 per cent of GDP (£1.39 trillion) in 2013.12 The policies have also had far-reaching impacts on the poorest people in the UK. In 2010, the Conservative-Liberal Democrat coalition government announced the biggest cuts to state spending since the Second World War,13 including significant cuts to social security and the planned loss of 900,000 public sector jobs between 2011 and 2018.14
https://www.oxfam.org/sites/www.oxfam.org/files/cs-true-cost-austerity-inequality-uk-120913-en.pdf
Task:
Research the annual UK Budget and Autumn Statement. Analyse the effects of 3 of their policy changes on the macro economy.
Budget 2015
Autumn Statement 2014
Research the annual UK Budget and Autumn Statement. Analyse the effects of 3 of their policy changes on the macro economy.
Budget 2015
Autumn Statement 2014