A Level Economics AQA Practice Exam

What is public expenditure?

1. Only the salaries of government employees

2. Spending by the public sector on various services and goods

3. Investment by private firms in public infrastructure

4. Private donations to government initiatives

The correct answer is: Spending by the public sector on various services and goods

Public expenditure refers to the financial outlays made by the government and other public sector entities to provide goods and services to the community. This encompasses a wide range of spending initiatives, including but not limited to education, healthcare, infrastructure, defense, and social welfare programs. It is crucial for understanding how governments allocate resources to fulfill their responsibilities and meet the needs of the population. The correct choice highlights the broader spectrum of public sector spending, which is essential for the functioning of society as it impacts economic stability, growth, and overall quality of life. Public expenditure plays a vital role in stimulating economic activity, influencing aggregate demand, and delivering essential services that are typically not provided by the private market due to various market failures. In contrast, the other options narrow the definition too much or mischaracterize public expenditure. For instance, focusing solely on government salaries excludes significant investments in infrastructure, public health, and education. The option referencing private firm investments in public infrastructure does not constitute public expenditure as it pertains to private sector activities, and private donations do not reflect government spending, which is financed through taxation and borrowing.