Examine two reasons why a government might wish to control increases in its expenditure
Examine two reasons why a government might wish to control increases in its expenditure
Increases in government expenditure will shift the Aggregate Demand (the sum of all demand within an economy) outwards. This is called an expansionary fiscal policy (fiscal meaning relating to government spending), and may be implemented to stimulate an economy if it is in recession. Another type of fiscal policy is called contractionary fiscal policy, and is used to help control demand pull inflation. Demand-pull inflation is the increases in prices at a relatively higher rate than increases in income. This occurs when demand is greater than supply. A government may wish to control increases in its expenditure for a number of reasons, including controlling the extent of government intervention, letting market forces act and to prevent crowding out. The two reasons that I will examine are to keep the tax levels down and to control inflation.
Taxes are placed in two categories. First there is direct tax, which is tax levied directly to a person or organization, for example income tax. The second category is indirect taxes, which are taxes placed on goods and services. In Australia, the main indirect tax is the Goods and Services Tax (GST). This is relevant to the governments expenditure plan because of the affect increases or decreases in expenditure will have on the budget, which is a summary estimate of planned spending over a period of time. In Australia, this period of time is one year, with changes to the budget announced annually. The budget can be in three states, surplus, balanced or deficit. Surplus means that the government is spending less than what it receives. In other words, taxation revenue is higher than government expenditure. This situation does not occur by accident, and money from the surplus is often used to pay off debt incurred from deficit budgets from the past. A deficit budget is where government expenditure is higher than the money received from taxation. To finance this, governments go into debt. Again this situation is planned, and may occur because governments are spending lots to stimulate the economy in a recession. Finally, a balanced budget means that taxation revenue is equal to government consumption, and there is no deficit or surplus.
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Peer Reviews
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Quality of writing
The structure here is fine. There is a clear introduction and conclusion. However, some of the introduction is unnecessary. For example "I will examine" is not a sophisticated way to write at A-Level. It's much better to say "Two main reasons are" and not use the first person. The conclusion adds nothing to the argument, whereas this is the perfect place to add a last judgement or perceptive point. Ending on a strong note is often where the final marks for an essay are allocated, and sentences such as "the extent to which governments must control increases in their spending depends upon" will gain the top marks. Spelling, punctuation and grammar are fine.
Level of analysis
The analysis here is good. I liked how key concepts were defined instead of simply used. For example "Surplus means that the government is spending less than what it receives" shows a good understanding. To improve this definition, I would've included "what it receives in tax revenue" to show the examiner you are differentiating from any other types of inflow. To take this answer to the next level, there needs to be a discussion of the importance of budget deficits and how they are detrimental to an economy. This is very topical, and it would be easy to draw upon the huge debt levels of Greece and what this has done for their international status. At A-Level, it's not good enough to say governments want to keep a budget surplus without stating why. The diagrammatical analysis for inflation is strong, with the Keynesian long-run average supply curve making a clear example of demand-pull inflation. Although simple, I particularly like the sentence "The diagram shows that an increase in AD from AD to AD1, caused in this case by an increase in government spending, will lead to an increase in the general level of prices from point y to x" as it shows the skills necessary to interpret the diagram, thus showing understanding. Once again, I think there needs to be a discussion of why keeping inflation stable becomes important to an economy.
Response to question
This essay has a clear answer, looking at why the government is controlling its spending. I think the crux of this question lies in the "increases in government spending". This essay identifies this, and these is some discussion of spending growing too quickly, causing a budget deficit and other relevant points. It is key not to deviate from the question, as it's easy to assume this is simply wanting a discussion of what effects government spending can have on the economy. It was good to see that one of the two reasons was controlling inflation, but I would've made the second reason more explicit in maintaining a budget surplus or a low budget deficit, rather than keep taxes down.
