• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Using the data and your economic knowledge, evaluate the contribution that the growth of government expenditure may make to the U.K. economic performance.

Extracts from this document...

Introduction

c.) Using the data and your economic knowledge, evaluate the contribution that the growth of government expenditure may make to the U.K. economic performance. Government expenditure has a major influence on the U.K.'s economic performance, however, it has to be recognised that it isn't the only factor affecting the U.K's economic performance. Government expenditure can also be seen as current expenditure, capital investment and as transfer payments, e.g. unemployment benefits. Government spending is mainly financed through the means of taxation and government borrowing. To evaluate the contribution the growth of government expenditure may make to the U.K. economy, it would be necessary to assess the government's macroeconomic objectives: Sustainable economic growth, 2% - 'plus/minus 1%' inflation, low and stable unemployment and a healthy balance of payments. For example, if there is a sharp increase in unemployment in the U.K. the government would be forced to pay out more through unemployment benefits and other things such as subsidies for businesses etc, therefore increasing government expenditure, as they attempt to stabilise the U.K. economy. Government spending can have a significant effect on the government's macroeconomic objectives. Economic growth can be affected both in the short and long run by aggregate demand, which includes government expenditure. ...read more.

Middle

Currently the U.K. economy is facing a recession - 6.3% unemployed, and the government has aimed to intervene by introducing several schemes, such as: subsidising businesses - e.g. the motor car industry, promoting and helping set up job centres, they are also helping to delay mortgage payments, due to the fact many people cannot afford to pay their mortgages at this moment in time due to the economic depression. Therefore, the government are able to use their spending on helping to improve on the levels of employment through a difficult period. The government can also use Fiscal Policy to influence macroeconomic variables and achieve their macroeconomic objectives. Fiscal Policy is dependent on the changes in the level and composition of both taxation and government spending, which can impact on many variables in the U.K. economy, such as: Aggregate Demand ( C+I+G+(X-M) ), resource allocation and the distribution of income. They can also introduce automatic stabilisers which aim to reduce fluctuations in economic activity. For example if unemployment rises, i.e. during a recession, tax revenue generated will therefore fall due to the loss of workers. In response to this the government may be forced to increase the level of Job Seekers Allowance. Increasing tax revenue can also be useful to reduce the amount of national debt in the U.K. ...read more.

Conclusion

With low interest rates, more people are likely to attempt to borrow money from the banks and consume more. However, at the moment, this is another issue due to the fact banks are very reluctant to lend to each other. Another factor that affects the U.K. economic performance is exchange rates. For example if the sterling to dollar exchange rate is �1 = $2, however the sterling begins to depreciate due to the lack of consumer confidence to �1 = $1.50, exports out of the U.K. will be cheaper for other countries, therefore we begin to lose money to the weaker pound. Not only this but it will also be more expensive to import goods from abroad, therefore there will be a decrease in AD, directly affecting the U.K.'s economic performance. In conclusion, the growth of government expenditure does have a major implication on the U.K.'s economic performance; however, it isn't the only factor that affects the country's economy e.g. consumer confidence in AD. Judging by the government's macroeconomic objectives, it is fair to say if there is a change in government expenditure it can have a significant effect on their objectives i.e. short and long run economic growth. However, as stated, consumer confidence is the major component of AD and even if there is a significant rise in government spending and intervention, it does not necessarily result in a more efficient economy, as seen currently in the global economic depression. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level Macroeconomics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level Macroeconomics essays

  1. Marked by a teacher

    Discuss the benefits of economic growth

    5 star(s)

    The US, which has a very high level of real GDP per capita, is a very powerful member of the United Nations, the International Monetary Fund and the World Trade Organisation. However, economic growth can come at a cost.

  2. Marked by a teacher

    The aim of this essay is to discuss the relevance of John Keynes to ...

    5 star(s)

    The chancellor intended to increase aggregate demand within the retail sector during the economy downturn. This change VAT is said to be a success as within the first 3 months retailers' generated turnovers �2.1billion higher than it would have been without the change (timesonline.co.uk).

  1. Marked by a teacher

    To what extent is economic growth desirable

    4 star(s)

    Economic Growth is also desirable because governments and business can invest more in efficient and green technology with higher revenue from taxes and profits gained from growth.

  2. What are the government objectives? Explain why each is important and how the government ...

    All governments use open or concealed import controls to some extent. In the long run import controls may result in greater economic growth and increased spending power for domestic consumers. That increase in spending power could more than compensate for the loss in welfare due to high prices and less choice.

  1. Quantitative and qualitative economic data

    Another avenue could be to measure data related to government macro-economic objectives. Quantitative measurements of inflation, unemployment, balance of payments and economic growth would provide an excellent assessment of the economic health of a country. These data provide hard evidence of the costs to the citizens the availability of work and the competitiveness of the country with other nations abroad.

  2. Governments set economic objectives - Discuss the relative importance of each of these objectives ...

    Keynesians believed the link was the other way around: increase in price caused by the real economy caused increases in the money supply and not increases in the money supply caused increases in the price level. Keynesians also argue that the initial shift in aggregate demand is only small, there

  1. Unemployment, inflation, economic growth and balance of payments have close relationships with aggregate demand

    An increase in interest rates will affect both the capital account and the current account of the balance of payments in a way that will reduce the excess supply of money on foreign exchange markets. High interest rates reduce the demand for imports and more importantly lead to capital inflow.

  2. Various Macro-Economic Questions and answers

    Changes in Monetary Policy ? i.e. a change in interest rates (Note there is more than one interest rate in the economy, although borrowing and savings rates tend to move in the same direction) An expansionary monetary policy will cause an outward shift of the AD curve.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work