Answer to Question #130740 in Macroeconomics for Letlhogonolo

Question

Government spending (as a percentage of gross domestic expenditure) has
increased significantly over the past decades. Explain any two reasons for this
trend.
(6)

Answer 1

In the recent years, government spending as a percentage of domestic expenditure has increased majorly due to the situations discussed below;

•     Government Entitlements.

As years have gone by, population in different countries in the world have continued to grow, and this has increased the demand for goods and services. In order for the increased demand to be addressed the government has to consider them in it’s budgets. Some of the considerations that the government addresses include giving pensions to the retirees, advanced medical care, extensive public education and also introducing family programs like maternal leaves together with rolling out family planning. All this programs did not exist in the early industrial eras, have made the government stretch it’s budget in order to address them and fulfill the wants of it’s citizens and this has led to an increase in the government expenditure as a percentage of it’s gross domestic product.

• Macroeconomic changes.

In the early years of growth of different economies in the world, the countries did not struggle to meet the needs of the people since the populations had not ballooned and also industrial growth was minimal. Equally, the unemployment and inflation levels were also low and the economy was able to meet all the needs of it’s people. As the economies continued to grow, there was much more disposable income and this increased inflation. Later, the budgets set by the governments were surpassed by the requirements of the people and they have become unsustainable. Therefore, the economies started facing major macroeconomic changes when there was slowed growth, inflation, high health care costs and also unemployment. This problems have gone on to-date making the government to have deficits and this has highly contributed to the an increase in government spending.