Government spending (G)
Public sector spending on goods and services.
Government expenditure
Key definitions
Current spending
Wages, drugs, day-to-day services.
Capital spending
Infrastructure, new hospitals, equipment.
Transfer payments
Benefits and pensions — not in GDP directly.
Fiscal policy
Use of G and taxation to influence AD.
Expansionary fiscal policy
Raise G and/or cut taxes → AD right.
Contractionary fiscal policy
Cut G and/or raise taxes → AD left.
Budget deficit
Government spending exceeds tax revenue.
National debt
Accumulation of past deficits.
Automatic stabilisers
Taxes and benefits that stabilise AD without new policy.
Key concepts
Transfer payments re-enter circular flow via consumption.
G is ~25% of UK AD but larger share of total public spending.
Relevant tips
- Distinguish current vs capital G in essays.