4.4.2 Government Expenditure

• Higher government spending can help control inflation.

  False
• Current expenditure is typically consumed or used up within a year
• A decrease in government spending can lead to deflationary effects.


  True
• What is typically consumed within a year in government expenditure?

  Current expenditure
• What does MPC stand for in the multiplier formula?

  Marginal Propensity to Consume
• A decrease in government spending will reduce AD
• In the government expenditure multiplier formula, MPC stands for the Marginal Propensity to Consume
• Order the methods governments use to finance their expenditures from most common to least common:

  1️⃣ Taxation

  2️⃣ Borrowing

  3️⃣ Selling Assets
• Match the type of government expenditure with its definition:

  Current Expenditure ↔️ Spending on day-to-day operations

  Capital Expenditure ↔️ Spending on long-term investments
• Current expenditure is typically consumed or used up within a year.


  True
• A decrease in government expenditure shifts the AD curve to the left.


  True
• If the multiplier is 5, a $1 increase in government spending leads to a $5 increase in total output.


  True
• An increase in government expenditure leads to a rightward shift in the AD curve.
• What is capital expenditure used for?

  Long-term investments
• What are the potential effects of increased government expenditure on the economy?

  Economic growth and inflation
• What is capital expenditure used for?

  Long-term investments
• What are the potential effects of decreased government expenditure on the economy?

  Deflation and lower output
• Government expenditure refers to the spending by the government on goods, services, and investments
• Match the type of government expenditure with its definition:

  Current Expenditure ↔️ Spending on day-to-day operations

  Capital Expenditure ↔️ Spending on long-term investments
• Order the effects of increased government expenditure on aggregate demand:

  1️⃣ AD curve shifts to the right

  2️⃣ Higher output

  3️⃣ Increased employment

  4️⃣ Potential inflation
• Current expenditure includes spending on welfare payments and interest on government debt
• The government expenditure multiplier measures the change in total output resulting from a change in government spending
• A higher MPC results in a larger multiplier.


  True
• The government expenditure multiplier measures the change in total output resulting from a change in government spending.


  True
• If the multiplier is 5, a $1 increase in government spending leads to a $5 increase in total output
• Understanding financing methods is essential for assessing government fiscal policy.


  True
• Government expenditure can be used as a tool of fiscal policy
• Capital expenditure contributes to long-term economic growth
• The government expenditure multiplier shows how changes in government expenditure can lead to larger changes in aggregate demand
• Match the method of financing government expenditure with its advantage:

  Taxation ↔️ Stable revenue

  Borrowing ↔️ Quick access to funds

  Selling Assets ↔️ Reduces maintenance costs
• What happens to the AD curve when government expenditure increases?

  Shifts to the right
• Government expenditure is a key component of Aggregate Demand (AD).


  True
• Current expenditure includes spending on day-to-day operations, such as public sector wages, welfare payments, and interest on government debt
• Government expenditure is a key component of Aggregate Demand (AD).


  True
• Increased government expenditure shifts the AD curve to the right.


  True
• What happens to the AD curve when government expenditure decreases?

  Shifts to the left
• What is government expenditure divided into two main types?

  Current and capital expenditure
• What is capital expenditure primarily used for?

  Long-term investments
• An increase in government expenditure shifts the AD curve to the right
• The government expenditure multiplier formula is $\frac{1}{1 - MPC}$ where MPC is the Marginal Propensity to Consume.


  True