Relevant Syllabus

• the components of government revenue and expenditure in the budget

The Budget §

Budget allocations are allocated based on the three functions.

Allocations / Allocative Function §

• Determine how money is raised & spent and spent within the government itself
• Do not change much year to year, as determined by the public sector.
• Includes both current and capital consumption. (see G1 & G2 Spending)

Redistributive Function §

• Redistributes wealth from rich to poor usually using Taxation.
• Wealthy households pay a higher rate of tax.
• Poorer households receive more direct & indirect government support.

Stabilisation Function §

• Government can use the budget to stabilise macroeconomic activity / Manage the economy.
• The Stabilisation Function also allows for the dampening of the fluctuations in the business cycle.
• Deliberate or Discretionary changes to the budget which are used to achieve the Government Economic Objectives.
• Predomanintly consists of G2 Government Spending. (Discretionary)

#econs-example

Governent first used budget to stabilise the econony in 1951-52 by using it to cool the booming post-war economy. At the time;

• Inflation was above 15%
• Unemployment was less than 1%

The Interventionist Policies §

• Prior to the 1950s governments attempted to maintain a Balanced Budget