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Goverment spending. How and why the Government spends and how this might affect Tescos.

Extracts from this essay...

Introduction

Nanaesi Wright Unit 39 The Government is the biggest spender in the economy. Money is spent in the Public, Private and Voluntary sector. The government spends money on different things needed for the economy to ensure that standards of living in the country remain high and avoids the country from going down during recession. In a return the government receive money from taxes such as VAT, NI Tax, Income tax etc which is from the general public. This chart shows the different things that the government spend on. When the government spends money in the public sector it indirectly spends money in the private sector as workers from the private sector will be hired and paid for the work done. This is done as they need specialist skills that are essential for the work for example building a school. Contractors will be needed for any construction work that will be needed. Deficit Funding - This is when the government expenditure is higher than what they receive. Government spending is so important in an economy that they are sometimes forced to borrow money when they don't have enough due to overspending. To improve standards of living and to avoid the country going into a recession Deficits are funded by borrowing money from banks.

Middle

and spend (money goes around in the economy) * The equipments they may need for this job role is computers, telephones, stationary and a working area. When people become homeless, they are offered temporary accommodation which is all paid for by the government, form electricity, gas, food etc. With the help form the government there will be a reduction of self harm and alcohol or drug related sicknesses which will later on be a burden on the NHS, so helping these people can also be seen as an advantage as it stops them from getting ill and ending up in hospitals which are also paid for by the government. * Multiplier effect: This is the number of times that additional government spending on the economy re-spent and the resulting overall increase in spending (Dooley et al page 270) Leakages - This is the savings and taxes that are paid in order to reduce the effects of the multiplier, increasing the economy. The multiplier effect will lead to Aggregate demand (AD) which is the total demand. Aggregate Demand - This is the total amount of demand for goods and products in the economy. The more money spent in an economy, the more Aggregate demand increase. The multiplier effects occur because of investments in the economy.

Conclusion

If Tesco's business is not running at the best of their ability due to less customers or less money, then investors will not invest their money in shares in the business. Overall government spending helps my chosen business as it helps them stay afloat and keeps their business running because it spends money in the private sector without realising. * The government shortage would have a multiplier effect on the economy which would then impact on Tesco's: 1. Foremost of all, the government invests money in the defensive side of the country (police). 2. Out of the money invested, the police force then decides to donate some to building shelters for the homeless (voluntary) and also purchase various items such as batons, shields, etc. The police workers then decide to buy some food items from Tesco's (private). 3. Out of the money invested in they then decide to pay the police workers. The workers and business are then taxed; the taxes received are classified as a leakage. Conclusion: The multiplier effect came into action from when the government invested money in the country's police force. The police force then had to go and buy more gear from the private sector, as well as investing money in Tesco's ( buying there products). The government gains back some of the money invested through taxes (income tax, corporation tax, etc). ?? ?? ?? ?? 1

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