Explain possible economic reasons for c

Topics: Macroeconomics, Public finance, Economics Pages: 3 (760 words) Published: November 28, 2014
Explain possible economic reasons for changes in the level and distribution of government expenditure. The government spends money for a variety of reasons. Firstly, to supply goods and services that the private sector would fail to do, such as public goods, including defence, roads and bridges, they also spend money to improve supply side policies such as education and training to improve labour productivity. Government spending is also spent on things like subsidies used to help companies financially who struggle to survive by themselves or they could also used their expenditure to help re distribute income and make it more equal. The main areas of the UK government spending in 2008 which totalled £575 billion were Social protection, Health, education, Public order and safety and Defence. Fiscal policy is the deliberate adjustment of government spending, borrowing or taxation to help achieve desirable economic objectives. There are two types of fiscal policy, discretionary and automatic. Discretionary meaning policies which are put into place via one off policy changes whereas automatic policy’s refer to ones which happen naturally within an economy such as Fiscal drag. The financial crisis of 2008 made the government expenditure change its priorities vitally. They had to begin increased lending to banks to help keep them financially afloat. According to the Institute for Fiscal Studies (IFS), the central government net borrowing requirement in 2009, of approximately £150b, was almost double initial estimates. Simply due to the fact the government had to lend a lot more to banks than excepted due to the Recession. However this increased expenditure can add to the national debt and could lead to a fiscal deficit. Fiscal deficits occur when the revenue received by a government is less than spending during a financial year. A rising national debt can happen when tax revenues fall and government spending rises as the economy slows down or goes into recession,...
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