Fiscal Policy: Government Spending I A Level and IB Economics

Summary

This video introduces the basics of fiscal policy, focusing on government spending. It covers the three main categories of government spending: transfer payments (such as welfare), public services (like education and healthcare), and capital investments (such as infrastructure projects). The video also explains the importance of government spending in boosting aggregate demand, reducing regional inequality, and impacting household income. Key UK spending figures from 2019-2020 are highlighted, including major expenditures on healthcare, education, defense, and pensions. The video sets the stage for deeper discussions on fiscal policy and its role in the economy.

Takeaways

• 💰 Fiscal policy involves changes in government spending, taxation, and borrowing to achieve economic objectives.
• 🏛️ Government spending is divided into three categories: transfer payments (welfare), public services (current spending), and capital spending (big investment projects).
• 👵 Transfer payments include welfare spending like state pensions and jobseeker allowances, which are transfers from taxpayers to benefit recipients.
• 🚓 Public services or current spending refers to recurring expenditures on essential services such as police, healthcare, and education.
• 🏗️ Capital spending includes large investment projects like new infrastructure, hospitals, and flood defense systems.
• 📉 Government spending is a major part of aggregate demand and can help sustain jobs and address regional economic disparities.
• ⚖️ Government spending can impact income distribution through welfare programs and services like education and healthcare.
• 🧓 The state pension is the biggest item in welfare spending, costing over £100 billion annually.
• 📊 In 2019-2020, total UK government spending was £841 billion, accounting for nearly 40% of national output.
• 📉 The gap between government spending and tax revenue creates the budget deficit, a key issue in fiscal policy.

Q & A

What is fiscal policy?

Fiscal policy involves changes in government spending, taxation, and borrowing to achieve economic objectives, both microeconomic and macroeconomic.

What are the three main categories of government spending?

The three main categories are transfer payments (welfare spending), public services (current or recurring spending), and capital spending (large investment projects).

What are transfer payments in government spending?

Transfer payments, or welfare spending, refer to government transfers from taxpayers to benefit recipients, such as state pensions or jobseeker's allowance.

What is current or recurring government spending?

Current spending is day-to-day government expenses for providing public services, like paying NHS staff or repairing roads, that occur regularly.

What is capital spending by the government?

Capital spending involves large investment projects, such as building new infrastructure like motorways, defense equipment, or major public health equipment.

How significant was the UK government’s spending in 2019?

In 2019, total UK government spending was over £800 billion, accounting for 22% of GDP, particularly for public services like education and healthcare.

What impact does government spending have on regional economies?

Government spending can have a significant regional impact by increasing spending in areas with higher unemployment and lower per capita incomes.

How does government spending affect household income?

Government spending affects household income directly through welfare benefits and indirectly by providing benefits in kind like education, healthcare, and social housing.

What are the main areas of UK government welfare spending?

The UK government spends over £100 billion annually on the state pension and funds programs like universal credit, which consolidates various welfare benefits.

What is the connection between government spending and income distribution?

Government spending on education, healthcare, and housing can reduce inequality by providing access to essential services, though the distribution of these benefits may not always be equal.