PUBLIC EXPENDITURE

 

PUBLIC EXPENDITURE

1.    What is public expenditure (P.E.)?

Ans.) Public expenditure is the expenditure incurred by central, state and local government for its own maintenance and also for the satisfaction of collective needs of citizens and for promoting their economics and social welfare.

2.    2.     Distinguish Between: 

Direct Expenditure	Transfer Expenditure
·        Exp. Incurred by the govt. on the purchase of goods and services and on current services of factors of production.	It is that expenditure which takes the form of transfer payment which are being paid without any corresponding return of any knid of services.
·        It help in the creation of assets which yields an income for the govt. by increasing productivity.	Since these expenditure are incurred without any corresponding return, hence it does not yield any income and nor lead to any productivity.
Development Expenditure	Non-Development Expenditure
·        It is that expenditure which is incurred by the govt. on the economic and social development of an economy.	It is that expenditure which is incurred on non-developmental purposes or in the form of providing general services to the people.
·        Improves the production capacity and efficiency of an economy.	Does not improve the productive capacity and efficiency in anyway.
·        Such expenditure yield an income	They do not yield any income.
Productive Expenditure	Unproductive Expenditure
Same as above	Same as above.

 3.    What is the effect of public expenditure on production?

Ans. When the government spends money on defense, police, developmental  activities, civil administration. It creates demand for various types of goods and services thereby creating income for the suppliers of these goods and services. In this way the purchasing capacity of these people can be enhanced.

·        When the govt. spends on education and training it helps to transform human beings into human capital who become an assets for the economy.

        4.)    What is the effect of public expenditure on investment?

Ans.)        When the government spends on maintenance of law and order and strengthening the security it develops confidence in the minds of the investors and motivates them to invest more the economy.

·        When the government spends on economics and social overheads it helps to improve the social and economic lifestyle of the economy, e.g. expenditure on education, training, urbanization, industrialization helps to improve the socio-economic standards of the economy.

5.)    What is the effect of production expenditure on income distribution?

Ans.·        When the government spends on public utility works it is able to create employment opportunities for a vast majority of the ppl. This helps the govt. To generate income and upgrade their standard of living.

·        When the govt. spends on providing subsidies to the entrepreneurs to the backward and remote areas it is able to motivate more and more produces to set up industries in these areas. In this way a balanced regional development is possible.

6.)    What is the effect of the public expenditure on economic growth?

Ans.)·        When the government spends on economic and social overheads like- setting up schools, colleges, hospital, basic and heavy industries. It is able to bring about economic development in an economy.

·        When the govt. spends on education, training, research facilities it helps to improve the economic standards of an economy thereby leading to economic development.

7.)    How does public expenditure ensure economic stability?

Ans. ·        During depression when private expenditure falls, government should increase its own expenditure by undertaking public utility and giving transfer  payments in order to revive the economy.

·        During inflation when private expenditure rises, the government should lower its expenditure by not undertaking public utility works and not giving transfer payment. In this way the economy will stabilize.

8.)    What is Wagner’s Law”

Ans.) Adolf Wagner a great German economist had said that in modern times due to democratic govt. the activities or functions of the govt. are increasing tremendous with modernization because people’s expectation from the govt. are increasing so the government’s responsibilities are also increasing thereby leading to an increase to public expenditure.