AD + Gov Spending

• Government spending is a key component of the aggregate demand equation and can influence both short-run and long-run growth.
• Current spending is the spending on the maintenance of key public sector services such as the NHS, State schooling, and infrastructure.
• Capital spending is the spending on infrastructure projects like the building of new hospitals, schools, roads, airports, ports, and railway lines.
• Welfare spending is the spending on benefits and pensions, which is the biggest chunk of government spending in many developed countries.
• Debt interest payments are a part of government spending and are the opportunity cost of debt.
• A budget deficit is when government spending is greater than taxation revenues in a fiscal year, which is borrowing in one year.
• A budget surplus is when government spending is less than taxation revenues, but again in a fiscal year, which is a savings in one year.
• The national debt is the total stock of debt over time, which is the total stock of debt.
• A budget deficit is different from the national debt in that it is a flow concept, while the national debt is a stock concept.
• Five years of budget deficits will increase the national debt, while after one year of budget surplus, the national debt will come down.