ECONOMICS

Economics

Economics

Introduction

This paper will be discussing how government spending impacts the businesses. We will study the impacts of government spending under the headings of local and national level. Also, this study will see different effects on the chosen business. The business I have chosen for this task is BMW a world's leading brand.

Government Spending

The government sector is a key part of the economy, the nature of public sector in each country varies according to specific institutional arrangements, the adequacy and generosity (or irresponsibility) of the schemes.  The UK's state role is to be primarily engaged in national security, internal security, justice and services that provide assistance in the areas of health, education, retirement and in some cases protection through insurance programs or improvements to tackle structural unemployment (Oliver & Gerhard, 2006, 36).  The government as well as agents, also has a budget constraint, these are the revenues from tax sources or internal and external financing, and such income is applied to government spending that is made in the purchase of goods and services or investment in public goods. 

In this case, G is the demand for goods by the government in period t, which also means total government expenditure G, divided by prices is government spending in real terms. This expenditure is equal to the purchase of goods and services the real value of total government transfers to other agents:

G t / P t

For now, assume that the only government revenues come from the issuance of money:

(M t - M t -1) / Pt

Now suppose that the government also requires households to pay taxes. Tt is the amount of taxes in a period t. in this case; the actual amount of tax revenue is Tt / P t.  The budget constraint implies that expenditures are equal to total revenues:

GT / P t = [T t + (M t - M t-1)] / P t

Different Effects of Government Spending of BMW Business

Government spending can be divided into four categories. The first is that government consumption G denotes includes the salaries paid to government workers and payments for the goods they purchase for current consumption.  Second, government investment Ig includes a variety of forms of capital expenditures as construction of roads and ports. Thirdly, it is the transfer to the private sector as retirement pensions, unemployment insurance. Fourthly we have the interest on the debt (Volker & George, 1998, 12).  All these factors are important as the BMW are car manufacturers and their cars are bought by the customers which are local public. So, if there is an increase or decrease in government spending it directly affects the consumers present in the economy.

These costs generally fall into two major categories: What the government spends on goods for maintenance, such as salaries, services and others, whose impact is limited, it is called current spending.  The government also transfers to consumer's health benefits, education and others. It also makes expenditures to build roads, hospitals, airports, universities, irrigation. These expenses are called high-impact capital expenditures.  A major ongoing expense in time becomes a permanent spending whose ...