2.2.4 - Government spending

• The government has a very significant part to play in the level of AD, through spending. They spend money on defence, education, the NHS etc. The impact of a rise in government spending depends on the changes in tax
• Influences on government expenditure:

  • Fiscal policy is the decisions about government spending and taxes and it will depend on the priorities of the government. The level of government spending depends on what they lay out in their fiscal policy
• Influences on government expenditure:

  • Age distribution of the population: An ageing population leads to increased government expenditure on pensions, social care etc. whilst a young population leads to increased spending on education. The more dependents in the economy (the young and old), the higher government spending tends to be