Over the years, the government spending has changed drastically. The government which is a representation of the people has been doing more under entitlements than investments. In the 1960s, the government did much for the investments than the entitlements, but the reverse has been happening. Few investments are being developed, and the opportunities reduce because much of the finances are used for benefits. The federal expenditure has grown rapidly as the governments become. Before the 1960s, the government earned more from the tax payers and revenue collection but after the Second World War, they economy boomed, and the government spending increased (Perkins, Radelet, Lindauer, and Block, 2012). The spending was through the government programs such as transportation, defense, physical resources, commerce and international affairs. For instance, a trend in the changes in the investments and entitlements shows a decline in investments over the years and an increase in rights.
The term investment spending is used to explain the use of money or revenues by the government in projects or programs which have a long term benefit. The projects are expected to earn some income for the nation in the future years to boost the economy. They are beneficial programs aimed at bringing long-term growth. Consumption spending, on the other hand, is the used of revenues with no gained benefits. It is aimed at taking care of the human welfare without expecting something back. It is a mode of taking care and protecting the people. There are different categories of spending by the federal government that can either be investments or consumption (Mankiw, 2014). Categories such as defense, medical care, education and food and nutrition are investment programs. By spending on this sectors, the governments protecting the future and ensuring a tomorrow that is vigorous and healthy with manpower able to bring development. The benefits of the programs are long term, and their impacts will be felt in the future. Payments to retirees and unemployment insurance on the other are consumption spending. The amounts do not yield any benefits that will lead to the growth of the economy, but they are a form of protecting and taking care of its people without expecting anything in return.
The government spending has several impacts on the economy. Government spending affects the economy in several ways which include: allocation of resources, distribution of income and competition with the private sector. Under the distribution of resources, a government has to distribute resources equally and meet all the needs of the people (Perkins, Radelet, Lindauer, and Block, 2012). For example, if it decides to construct roads, it should be a national program that aims at building roads in the whole country and not only in the cities or where the rich people are situated. Government’s expenditure affects the income of the citizens. It should be able to redistribute wealth to reduce the boundary between the poor and the rich. Competition with the private sector comes in when the government offers poor services. The government should spend its income to ensure it’s the best service offering organization to avoid competition.
When the government uses more than it earns then, a deficit will occur. Every government should have a budget that fits it income and revenues to reduce the deficits which lead to borrowing. The debts that a country has can significantly affect its growth because most of the extra income is used to pay debts instead of developing the nation (Perkins, Radelet, Lindauer, and Block, 2012). The National debt can affect the economy through public versus private debt, individual incentives, and transfer of purchasing power and distribution of income. The national debt can make a government less powerful regarding growth, and the industry will take over. States in the world today are setting agreements for development ventures in the case where a government is not able to fully develop and improve the economy.
References
Mankiw, N. G. R. E. G. O. R. Y. (2014). Principles of macroeconomics. Cengage Learning.
Perkins, D. H., Radelet, S., Lindauer, D. L., & Block, S. A. (2012). Economics of development
