Increasing government spending will help the economy
Government spending entails all activities undertaken by the governments in the day to day lives. Government spending emphasizes on it procuring the components that the citizens need. The expenses incurred are usually short term. Government spending can either improve or destroy the economy. It depends on the prevailing conditions in the market and the economic state of the country (Driver, Stephanie 97). However, government spending can be kept in check by formulating fiscal laws that limit the expenses. Government expenditure is undertaken for several different reasons. They vary from provision of social amenities like health care services, schools, and other funds required to be availed to the underprivileged people in the communities.
The provision of the housing facilities has helped ease the challenge of lack of shelter in many households. With many households having shelters, it results to increased productivity levels of the individuals. The citizens are left with much to spend as they do not have to worry of the rents since; the government will have catered for that. When the productivity levels upsurge, improved living standards are experienced among the people. They are able to increase the income levels of the citizens thereby; improving their purchasing power (Miller, Roger, and Alan 79). With the increased sales, the government is able to collect considerable revenues and the taxes. The purchasing power enables the citizens buy in bulk hence much revenues collected from value added tax. Increase in their salaries ensure that the government gets the chance to collect more from the citizens as the higher the income level, the higher the Pay As you Earn Rates.
Investing in the infrastructure is also a form of government spending. Infrastructure entails improvement of the roads and the communication systems. Communication ensures that is easier conveyance of messages in the nation. The roads facilitate the movement of goods, services to their respective places. Easier and faster movements prevent the perishable farm products from going bad as they are availed to the markets at the right time (Herendeen, James 234). The farm products increase in the markets that result to their exportation thus becoming a foreign income earner to the country. It prevents the farmers from incurring the losses which would have dragged them behind in relation to their living standards. In the purchasing of the goods or services, money exchange hand increasing its circulation in the economy.
The Gross Domestic Products can only be increased through government expenditures. The GDP ensures the constant economy of the country since it ensures that the net exports remain positive. If not checked and maintained, the GDP could even be negative when the imports surpass the exports. Increases in the import only facilitate the growth of the foreign countries economy. The government must, therefore, spend to facilitate the production of the products to be exported. It should be upon the obligation of the government to provide subsidies to the producers as a way of encouraging them to produce surplus products that can be exported.
The multiplier effects are brought about by the government spending that triggers the upsurge of the economy. Government spending ensures that there circulation of money in the economy leading to more spending of the people (Driver, Stephanie 213). It also leads to high employment rates since there is creation of more employment opportunities. By creating employment opportunities, there is reduction of social evils that discourage investors from capitalizing in the country. High investment levels contribute to the improvement of economy of the nation. The higher the multiplier effect, the better it becomes to the economy.
Nevertheless, government expenditure depicts that the government ought to have adequate capital to finance their expenses. It predisposes the citizens to be taxed more so as to meet their target. The interest rates on government borrowing are increased to discourage the people from borrowing so as to have more on their side (Tainer, Evelina 321). The prices of the goods and services are increased to increase the revenues collected from the people. The impact is heavily felt by the low income earners as they are forced to dig deeper into their pockets to meet their daily needs. The increase of the product prices leads to some of the products being foregone. Spending of some products is postponed by the consumers to meet the most pressing needs.
Expenditure by the government leads to increased circulation of money into the economy. The circulation dictates the availability of money to spend. The banks are also forced to reduce their interest rates charged on loans to curb the competition from other financial institutions. The reduction in the interest rates lowers the profitability levels of the financial institutions. On the other hand, the economy of the country is at risk of retrogressing or even stagnating. Therefore, it adds no value on the citizens as it becomes a burden to them. People are motivated to work more if they see positive results in their contribution to the economy Welch, Susan 316). With the economy downturn, fewer people engage in businesses that would see an upsurge of the economic status hence deteriorating it more.
Government disbursements lead to the misrepresentation of dissemination of the natural resources. The spending leads to some specific individuals with more purchasing power to acquire more products than the low income earners. Therefore, there is unequal resource allocation in different communities. The feeling of being left out in the development activities by the government result to them developing hatred against the affluent individuals (Welch, Susan 143). The hatred could also result to increase in social evils when the poor try to get the resources via force. The social evils at times can be extreme to the extent of death. The loss of life drags the economy of the country due to the reduced productivity level.
Expenses incurred by the government leads to wastefulness of costs. Being in a position to offer most of the services, they end up offering substandard services to the citizens. The compromise on the quality of the goods and services would result to encouragement of the private sector companies to indulge into the provision of the services and goods. People would prefer to have quality products thereby; shifting the private sectors. This leads to wastage of the government resources since it comes out as misplaced priorities. The antagonism in the private sector is, however, fueled by the government when they provide substandard goods and services (Herendeen, James, 118). As a result, the economy of the country grows due to the competition in the private sector but on the other hand, the government damages the economic growth.
When the government embraces the spending, it leads to the increase of demand of both the products and the services. The spending triggers the demand leading to better economic status of the country. There is free flow of resources and money as the suppliers’ sales increase and the consumers are able to meet their demands whenever the need arises.
Modernism is fueled by the government expenditure. Provision of poor quality of products has agitated the businesses in the private sector to innovate more so as to come up with more products to supplement or replace the ones provided the governments. By engaging in such activities, the economic growth is driven to the upper side. In this case, government spending helps the economy as it discourages sluggishness in innovations and inventions (Miller, Roger, and Alan 193). Developments of new products warrant the economic growth of a country is up for competitions with other countries since the advancements put the country ahead of the other countries.
Saving becomes hard when governments invest heavily on spending. The spending guarantees the availability of products and services at subsidized prices; therefore, most people would prefer to buy in bulk to take advantage of the prevailing market prices. Bulk buying discourages saving as most the income is consumed by the purchases. However, it is an advantage to the economy in the short term as it leads to increased revenues. In the long run, it becomes impossible for the people to take advantage of future investment that require the abrupt payment of the money (Tainer, Evelina 83). Investing in future is discouraged as the money is not available for spending hence deterring the economic growth of the country.
Conversely, before the government resolves into spending. Having known that the spending can either have positive or negative impacts, the government should make sure that they involve economic experts who can use their knowledge to determine the impact the spending will have on the economy before the incurrence of the expenditures. It is possible to ascertain the impacts of spending. ‘Prevention is better than cure’ is a saying that should linger in the minds of the government stakeholders so as to save the nation from economic recession, therefore, people should not generalize matters by opposing government spending or upholding it.
Driver, Stephanie S. Economic Literacy: A Complete Guide. Tarrytown, N.Y: Marshall Cavendish, 2010. Print.
Herendeen, James B. Issues in Economics. Lanham: University Press of America, 2008. Print.
Miller, Roger L. R, and Alan D. Stafford. Economic Education for Consumers. Australia: Thomson/South Western College Publishing, 2010. Print.
Tainer, Evelina M. Using Economic Indicators to Improve Investment Analysis. Hoboken: John Wiley & Sons, 2006. Internet resource.
Welch, Susan. Understanding American Government. Boston, MA: Wadsworth/Cengage Learning, 2010. Print.