Macroeconomic Activity

Factors that affect Government Spending and Net Exports

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Content Contributors
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Carys Brown

Learning Objectives

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Government Spending
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The level of government spending in an economy is influenced by a multitude of non-economic factors such as social and political influences. A recent example of this is COVID-19 pandemic. Some area of government spending fluctuates to suit the requirements and phases of the economy, for instance, during a period of low-economic activity welfare payments may increase to support those who are recently unemployed. This is also known as cyclical fluctuations as government spending is influenced by the phases demonstrated in the business cycle (booms and troughs) However, fixed payments from the government do not change, for example, health or education payment grants.

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Net Exports
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Net exports is an extremely volatile component of aggregate expenditure as it is highly dependent on many factors, including the state of foreign countries economies and trade agreements. Additionally, trade is also influenced by a multitude of external factors, for instance Agricultural trade is heavily dependant on seasons and climate. Australia is known as a ‘small open economy’ as it has an intense level of trade for a nation that is relatively ‘small’ in comparison to powerful nations such as China or the US.

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Concept of Macroeconomic Activity
Circular Flow of Income Model
Total Spending, Income and Output
Equilibrium, Injections and Leakages
Effects of Injections and Leakages on Income
Components of Aggregate Expenditure
Factors that affect Consumption
Factors that affect Investment
Factors that affect Government Spending and Net Exports
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