MODULE 2: GROUP 2

• Public consumption is the purchase of goods and services.
• Public investment is the long-term projects that benefit the public
• Transfer payments is for individuals and organizations that are not in exchange for goods or services.
• Income transfers are cash benefits for social welfare purpose
• Capital transfers are investment to create or improve assets
• Spending breakdown for the 2023 national budget (4):

  • Social Services (public consumption): 39.2%
  • Economic services (public investment): 29.2%
  • General Public Services & Debt burden: 15.3%
  • Transfer Payments: 16.3%
• Full employment is when all available labor resources are being used in the most efficient way possible without triggering inflation.
• Unemployment is when an individual who is not employed and is seeking employment, cannot find work. Meaning, someone is actively searching for a job but he/she is unable to find work.
• But true full employment is when anyone willing and

  able to work can find a job, and unemployment is zero.
• Types of unemployment (4):

  1. Seasonal unemployment
  2. Frictional Unemployment
  3. Structural Unemployment
  4. Cyclical Unemployment
• Seasonal unemployment occurs when people are unemployed at particular times of the year when demand for labor is lower than usual. It's a temporary window of time where the number of available employment opportunities decrease.
• Frictional unemployment is the result of voluntary employment transitions within an economy. This occurs in a growing, stable economy. Workers moving from job to job and new workers entering the workforce contribute to ____ unemployment
• Structural unemployment is when the skills of the workers do not match the abilities that employers are looking for. Globalization, shifts in consumer demand, and technology advancements can all contribute to this mismatch
• Cyclical unemployment is caused by economic downturns or is related to changes in business conditions that affect the demand for workers.
• Deficit financing is a policy in which government spending is more than it receives as revenue. The difference between the government spending and revenue received is being made by borrowing or minting new funds.
• The economic cabinet cluster is responsible for negotiating with creditors. Both internal and external in order to engage in bridge financing which means filling in the gap between the available funds and the planned expenditure.
• Types of Government Spending (2)

  1. Current Spending
  2. Capital Spending
• Current spending also known as maintenance and other operating expenses, which include expenditure on wages and raw materials. It is the expenditures made by the government on its day-to-day operations and the provision of public services.
• Capital spending are government investments in long-term infrastructure or physical assets with the goal of boosting growth, promoting economic productivity, or improving public welfare over time.
• Government expenditure refers to the purchase of goods and services, which include public consumption and public investment, and transfer payments consisting of income transfers (pensions, social benefits) and capital transfer.
• Basic premises of Government Spending Policies (6):

  • Re-allocating the scarce and limited resources across the country
  • Bringing down the inequalities in terms of earning and wealth
  • Paving way for economic stability
  • Managing public enterprises
  • Contributing to economic growth
  • Addressing the regional disproportions
• Increased government spending is likely to cause a rise in aggregate demand (AD). This can lead to higher growth in the short-term. It can also potentially lead to inflation.
• Higher government spending will also have an impact on the supply-side of the economy, depending on which area of government spending is increased.
• If spending is focused on improving infrastructure, this could lead to increased productivity and a growth in the long-run aggregate supply.
• If spending is focused on welfare benefits or pensions, it may reduce inequality, but it could crowd out more productive private sector investment.
• Full employment embodies the highest amount of skilled and unskilled labor that can be employed within an economy at any given time.
• Unemployment is those people in the workforce or pool of people who are available for work that does not have an appropriate job. (Module 2 page 16)
• Full employment occurs when all labor resources are used to put people to work.
• When the economy is at full employment, this increases the competition between companies to find employees.
• Public finance is the management of a country’s revenue, expenditures, and debt position through various government and quasi-government institutions.
• Current Spending refers to an expenditure category/expense class for support of the operations of government agencies such as expenses of supplies and materials, transportation and travel, utilities, repairs, and other similar expenditures. It's a short-term and has to be renewed each year.
• Capital spending is spending on physical assets like roads, bridges, hospital buildings and equipment. These projects and programs involve large amounts and often perceived to benefit the constituents for a longer period of time. Capital expenditure are not repetitive in nature and should only appear occasionally in the budget
• Principles of Government Spending (10)