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Chapter 11: Problem 1

What is the difference between government expenditures and government purchases?

Short Answer

Expert verified
Government expenditures include all spending by the government, including transfer payments like social security and interest payments on debt. However, government purchases are a subset of government expenditure and only include spending directly on goods and services for public purposes.

Step by step solution

01

Define Government Expenditures

Government expenditure refers to the total amount of money that a government spends within a specific fiscal year. This includes spending on welfare programs, healthcare, infrastructure, defense, pensions, interest payments on debt and other public services.
02

Define Government Purchases

Government purchases refer to expenditures on goods and services that government consumes for public purposes. It includes government consumption expenditure and gross investment. This is generally part of the government expenditure covered under the budget but excludes transfer payments like social security, subsidies, etc.
03

Identify The Differences

To understand the difference between the two, remember that government expenditure is a broader term that encompasses all types of spending by the government. On the other hand, government purchases are a subset of government expenditure and only include spending directly on goods and services. The primary difference lies in that government expenditures include transfer payments and interest payments on debt, while government purchases do not.

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