Capital, current and transfer spending, and what drives it

Overview

Recall questions on the three categories of public expenditure and on ageing, the economic cycle, ideology, globalisation and debt interest as drivers.

What you need to know

Answer each one before you reveal it.

Questions from this subtopic

Each one with the model answer underneath.

1. 1

   What is capital expenditure in the context of government spending?

   Model answer

   Government spending on physical assets that provide services over many years, such as infrastructure, buildings, and equipment.

2. 2

   Define current expenditure.

   Model answer

   Government spending on day-to-day running costs that are consumed within the financial year, such as wages, salaries, and consumables.

3. 3

   What are transfer payments?

   Model answer

   Government payments to individuals for which no goods or services are received in return, such as pensions, unemployment benefits, and welfare payments.

4. 4

   Why do transfer payments not directly contribute to GDP?

   Model answer

   Because they redistribute income rather than directly purchasing resources or producing goods and services.

5. 5

   How does capital expenditure differ from current expenditure in terms of productive capacity?

   Model answer

   Capital expenditure creates assets that enhance productive capacity, while current expenditure maintains existing services without adding to the capital stock.

6. 6

   Explain how an ageing population affects public expenditure.

   Model answer

   It increases public expenditure through higher pension payments and healthcare costs as the proportion of elderly citizens rises.

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