For P3, learners should consider the impact of changes to government spending on a selected business at a
local, national or European level. If government spending is declining, demand for a business’s products or
services will fall. This will have predictable consequences on the revenues, profit...
Unit 38 - P3
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In this assignmentI’m going to identify the impact of
government spending on a selected business
From my teachings ive gathered the,
Definition ofgovernment spending - Government spending
which buys goods and services produced in the economy and
which is not a transfer payment of money collected in taxation
from one group in society to another. Government consumption
counts towards GDP, while transfer payments take money from
some people and gives it to others. Most day-to-day health and
education expenditure counts as government consumption.
Building new hospitals is government investment, while old age
pensions are a transfer payment.
How it takes place at different levels–it can rake places in
many forms. I’m going to explain some in this paragraph.
Supply goods and services that the private sector would fail to
do, such as public goods, including defense, roads and bridges;
merit goods, such as hospitals and schools; and welfare
payments and benefits, including unemployment and disability
benefit. Another one is to achieve supply-side improvements in
the macro-economy, such as spending on education and
training to improve labour productivity. Also reductions with the
negative effects of externalities, such as pollution controls.
Subsidizing industries which may need financial support, and
which is not available from the private sector. Help redistribute
income and achieve more equity. Lastly injecting extra
spending into the macro-economy, to help achieve increases in
aggregate demand and economic activity. Such a stimulus is
part of discretionary fiscal policy.
The Multiplier Effect - In the economy, there is a circular flow
of income and spending. Everything is connected. Money that is
earned flows from one person to another, and most of it gets
spent again - not just once, but many times. What this means is
that small increases in spending from consumers, investment
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