Public Expenditure

Published by Vincent Okeng'o 3 days ago

How Economic Conditions Affect Public Spending Choices

1. Inflation (Rising Prices)

Government Response:

• May reduce overall spending to cool down the economy.
• Focus shifts from expansion to controlling inflation.
• Avoid increasing transfer payments (which boost demand).
• Delay or scale back capital projects to prevent overheating the economy.

Examples:

• Cuts in subsidies or public wages.
• Higher interest rates may reduce borrowing for large expenditures.

Goal:
To reduce demand pressure and stabilize prices.

2. Unemployment (High Joblessness)

Government Response:

• Increase spending to stimulate demand and create jobs (expansionary fiscal policy).
• More transfer payments: unemployment benefits, food subsidies, welfare.
• Invest in capital expenditure (e.g., roads, infrastructure) to create jobs.

Examples:

• Launch public works programs.
• Increase current spending on education and healthcare to absorb labor.

Goal:
To boost demand, reduce unemployment, and support vulnerable households.