Answer to Question #131422 in Macroeconomics for Kutlwano

Question

government spending has increased significantly over the past few decades. Explain any two reasons for this trend

Answer 1

Government spending has become a major concern to various governments in the world. This can be explained as below.

• Structural Unemployment.

This is a kind of unemployment that results from a mismatch of available jobs and the skills required. This leads to businesses laying off workers under different economic downturns i.e when there is an introduction of a new technology. This generally causes short-term employment which disorients government budgets through an increased demand of unemployment claims, health and food assistance, welfare payments and other stimulus packages enhanced to the citizenry to cushion them from the structural unemployment. This cycles in employment can explain why governments have budget deficits and have continuously increased over the past decades.

• Productivity Slowdown.

Usually governments have anticipated that they will have a positive growth each year in the gross domestic product. This growth entirely depends on productivity growth which is assumed that each individual worker will produce more than produced the previous year. Since this individuals put more hours to produce, this pushed capital and labor creates inflation which diminishes the nominal value of goods and services produced, rather governments should encourage better and efficient hours in there production. Governments have continued to experience this slow productivity in the recent past and has negatively impacted government budgets.