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Summary Business and the Economic Environment - P3
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P3 - Identify the impact of government spending on a selected business.
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Business and the Economic Environment P3P3 – Identify the impact of Government spending on a selected business
Government spending is the spending by the government in the economy on areas such as
education, health, social security, law and order, business support and development of
infrastructure.
There are two types of spending which are:
‘Current spending’ is the day to day running expenditures which is money being spent on the
provision of health care in the hospitals. This being through paying staff’s wages, buying medicines,
buying specialist machinery as well as the business running costs for example paying for electricity
and heating.
‘Capital /investment spending’ is money spent on capital projects e.g. building new schools, new
roads, new hospitals, new prisons, developing roads and internet access.
Government spending is very important as it is the main determinant of growth in the economy. If
the Government isn’t spending then we would not be in a good position. Government spending will
have to be financed and the government in power has to make logic decisions as to how much to
spend and how to finance it. Government spending is influenced by the type of government that is in
power and their economic policy, for example, a conservative government or a labour government
or hung parliament. Most modern Governments believe that it is important to spend in order to
stabilise the economy as well as being the main determinant for economic growth.
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.
In relation to this screenshot, this is the UK’s five
important points to long term economic growth
which should build a stronger and healthier economy.
Government spending is usually given within public
service sectors. Through this, money is generally
spent in areas such as health, education and social
services.
Government spending was introduced through the
Central Government Department’s within Northern
Ireland and also through the Local Government e.g. in
the form of ABC council. Government departments
, Business and the Economic Environment P3
within Northern Ireland can also include Invest NI, EOC, NITB and the Housing Executive. These
departments are also referred to the Department of Social Services, Transport and Education.
When money is put into these areas, it helps to develop existing resources as well as developing new
ones so that the community can benefit from them. For example, within the ABC council,
Government spending will have an impact on them as it helps to improve road networks, build new
facilities e.g. leisure centres, parks and it also opens up more opportunities for growth in the area
through the number of grants that are available for start-up companies or for the agricultural sector
which is the largest sector within Northern Ireland.
In regard to this screenshot, this shows the
numerous areas in which the ABC council
aims to and is currently addressing with
Government’s money.
Government Spending was introduced into
the private and voluntary sector in that
money was given to Public Private
Partnerships e.g. Drumglass High School.
The bailing out for the banks and trade
missions within the private sector and then
money was given to sports organisations,
housing organisations and community groups within the voluntary sector. However, the levels of
money spent within a country will depend on the government’s priorities for the whole of the UK
and so they will indicate exactly which areas need money invested on the most.
The Audit Commission is a central government agency that monitors public sector organisations in
order to determine how well they are spending government money and is it good value for money.
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.
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