Essays /

Government Spending Essay

Essay preview

A world bank report in 2007 commented on the continuing need for major spending worldwide on infrastructure in everything from roads and railways to water and electricity generation. A) Explain the effect of national income when there is an increase in spending on infrastructure. B) Discuss whether an efficient allocation of resources can be obtained only if large scale investment is undertaken by the public sector rather than the private sector.

A) The national income of a country is the amount of money earned by that country. Thus the more money a country earns the higher its national income. The national income of a country can be found using three methods which are the expenditure, income and consumption methods. All three methods can be used as they all achieve the same thing which is determining the income of the country in question. For this example however I will use the income method to elaborate as it will be easier to both explain and understand. Before explaining, it is important to note that the income method only takes into account incomes which have been paid out for services rendered. The importance of this is to rule out transfer earnings as part of the income method in determining national income. Transfer earnings are income provided by the state to citizens who do not do a service or provide a good for that income. An example of transfer payments is unemployment cheques issued by the United States to its unemployed citizens. This is so because people who receive transfer earnings incomes do not contribute to the output of the country thus cannot be calculated as such. Now we have cleared this up, what this leads to is the circular flow of income in a country. Simply put, what this does is to basically show how income is exchanged for factors of production between households and firms. A copy of a simplified circular flow of income will be attached. In this flow of in...

Read more

Keywords

10 2007 2moro 4am abandon access account achiev acquir activ add addit administr advers affect aim alloc alon alreadi also although amount anoth anyway associ attach attempt avail b bank base basic bed begin best better board budget build bureaucraci calcul cannot case caus chequ choic chpz circular citizen clear combat come comment compani construct consum consumpt continu contribut control copi cost could countri current cut daher debat decid decis deficit demand deriv determin didn direct discuss doesn dollar done earn easier econ econom economi effect effici elabor electr employ end engag enough entir essay essenc even everyon everyth exact exampl exceed exchang exclud expand expenditur experienc explain export express extern factor fall find finit firm first flow found fund gdp generat get go goal gone good govern great greatest hand happen head heart higher hinder household howev ill im import includ incom increas individu infinit infrastructur inject interest invest isn issu jeopard known labour larg larger law lead leader least less level littl lol long lose machineri made main major make mark may mayb mean member method might million ministri money motiv much must name nation natur necessari necessarili need negat new next nomin non non-exclud non-riv note obtain occur offer one ongo onto oppon opposit optimum option output paid parliament part parti pass pay payer payment peopl person phrase polit politician possibl present prevent previous privat problem procedur process produc product profit project provid public purchas put question quick railway ran rank rather real receiv reevalu relat reloc rememb render replac report requir resourc restrict result rival road rule said satisfact satisfi save say scale sector seen servic sharehold show side simpli simplifi sinc solut spend spoken stand state stick suggest suppli surplus take tast tax taxat term thing think three thus time tire togeth total transact transfer travel two understand undertaken unemploy unit use util valid varieti ve via want wast wastag water way welcom well whatev whether whilst withdraw worker world worldwid would yada yield