Government spending or expenditure includes all government consumption and transfer payments. In national income accounting the acquisition by governments of goods and services for current use, to directly satisfy the individual or collective needs of the community, is classed as government final consumption expenditure. Government acquisition of goods and services intended to create future benefits, such as infrastructure investment or research spending, is classed as government investment; these two types of government spending, on final consumption and on gross capital formation, together constitute one of the major components of gross domestic product. Government spending can be financed by taxes. Changes in government spending is a major component of fiscal policy used to stabilize the macroeconomic business cycle. Government spending can be a useful economic policy tool for governments. Fiscal policy can be defined as the use of government spending and/or taxation as a mechanism to influence an economy.
There are two types of fiscal policy: expansionary fiscal policy, contractionary fiscal policy. Expansionary fiscal policy is an increase in government spending or a decrease in taxation, while contractionary fiscal policy is a decrease in government spending or an increase in taxes. Expansionary fiscal policy can be used by governments to stimulate the economy during a recession. For example, an increase in government spending directly increases demand for goods and services, which can help increase output and employment. On the other hand, contractionary fiscal policy can be used by governments to cool down the economy during an economic boom. A decrease in government spending can help keep inflation in check. During economic downturns, in the short run, government spending can be changed either via automatic stabilization or discretionary stabilization. Automatic stabilization is when existing policies automatically change government spending or taxes in response to economic changes, without the additional passage of laws.
A primary example of an automatic stabilizer is unemployment insurance, which provides financial assistance to unemployed workers. Discretionary stabilization is when a government takes actions to change government spending or taxes in direct response to changes in the economy. For instance, a government may decide to increase government spending as a result of a recession. With discretionary stabilization, the government must pass a new law to make changes in government spending. John Maynard Keynes was one of the first economists to advocate for government deficit spending as part of the fiscal policy response to an economic contraction. According to Keynesian economics, increased government spending raises aggregate demand and increases consumption, which leads to increased production and faster recovery from recessions. Classical economists, on the other hand, believe that increased government spending exacerbates an economic contraction by shifting resources from the private sector, which they consider productive, to the public sector, which they consider unproductive.
In economics, the potential "shifting" in resources from the private sector to the public sector as a result of an increase in government deficit spending is called crowding out. The figure to the right depicts the market for capital, otherwise known as the market for loanable funds; the downward sloping demand curve D1 represents demand for private capital by firms and investors, the upward sloping supply curve S1 represents savings by private individuals. The initial equilibrium in this market is represented by point A, where the equilibrium quantity of capital is K1 and the equilibrium interest rate is R1. If the government increases deficit spending, it will borrow money from the private capital market and reduce the supply of savings to S2; the new equilibrium is at point B, where the interest rate has increased to R2 and the quantity of capital available to the private sector has decreased to K1. The government has made borrowing more expensive and has taken away savings from the market, which "crowds out" some private investment.
The crowding out of private investment could limit the economic growth from the initial increase government spending. Government acquisition of goods and services for current use to directly satisfy individual or collective needs of the members of the community is called government final consumption expenditure It is a purchase from the national accounts "use of income account" for goods and services directly satisfying of individual needs or collective needs of members of the community. GFCE consists of the value of the goods and services produced by the government itself other than own-account capital formation and sales and of purchases by the government of goods and services produced by market producers that are supplied to households—without any transformation—as "social transfers" in kind; the United States spends vastly more than other countries on national defense. The table below shows the top 10 countries with largest military expenditures as of 2015, the most recent year with publicly available data.
As the table suggests, the United States spent nearly 3 times as much on the military than China, the country with the next largest military spending. The U. S. military budget dwarfed spending by all other countries in the top 10, with 8 out of countries spending less than $100 billion in 2016. Research Australia found 91% of Australians think ‘improving hospitals and the health system’ should be the Australian Government’s first spending priority. Crowding'in' happens in university life science research Subsidies and government business or projects like this are justified on the ba
In accountancy, depreciation refers to two aspects of the same concept: The decrease in value of assets The allocation of the cost of assets to periods in which the assets are used Depreciation is a method of reallocating the cost of a tangible asset over its useful life span of it being in motion. Businesses depreciate long-term assets for both tax purposes; the former affects the balance sheet of a business or entity, the latter affects the net income that they report. The cost is allocated, as depreciation expense, among the periods in which the asset is expected to be used. Methods of computing depreciation, the periods over which assets are depreciated, may vary between asset types within the same business and may vary for tax purposes; these may be specified by accounting standards, which may vary by country. There are several standard methods of computing depreciation expense, including fixed percentage, straight line, declining balance methods. Depreciation expense begins when the asset is placed in service.
For example, a depreciation expense of 100 per year for five years may be recognized for an asset costing 500. Depreciation has been defined as the diminution in the value of an asset. Depreciation is a non cash expense, it does not result in any cash outflow. Causes of depreciation are natural tear. In determining the profits from an activity, the receipts from the activity must be reduced by appropriate costs. One such cost is the cost of assets used but not consumed in the activity; such cost allocated in a given period is equal to the reduction in the value placed on the asset, equal to the amount paid for the asset and subsequently may or may not be related to the amount expected to be received upon its disposal. Depreciation is any method of allocating such net cost to those periods in which the organization is expected to benefit from use of the asset; the asset is referred to as a depreciable asset. Depreciation is technically a method of allocation, not valuation though it determines the value placed on the asset in the balance sheet.
Any business or income producing activity using tangible assets may incur costs related to those assets. If an asset is expected to produce a benefit in future periods, some of these costs must be deferred rather than treated as a current expense; the business records depreciation expense in its financial reporting as the current period's allocation of such costs. This is done in a rational and systematic manner; this involves four criteria: Cost of the asset Expected salvage value known as residual value of the assets Estimated useful life of the asset A method of apportioning the cost over such life Cost is the amount paid for the asset, including all costs related to acquisition. In some countries or for some purposes, salvage value may be ignored; the rules of some countries specify methods to be used for particular types of assets. However, in most countries the life is based on business experience, the method may be chosen from one of several acceptable methods. Accounting rules require that an impairment charge or expense be recognized if the value of assets declines unexpectedly.
Such charges are nonrecurring, may relate to any type of asset. Many companies consider write-offs of some of their long-lived assets because some property and equipment have suffered partial obsolescence. Accountants reduce the asset's carrying amount by its fair value. For example, if a company continues to incur losses because prices of a particular product or service are higher than the operating costs, companies consider write-offs of the particular asset; these write-offs are referred to as impairments. There are changes in circumstances might lead to impairment; some examples are: Large amount of decrease in fair value of an asset A change of manner in which the asset is used Accumulation of costs that are not expected to acquire or construct an asset A projection of incurring losses associated with the particular assetEvents or changes in circumstances indicate that the company may not be able recover the carrying amount of the asset. In which case, companies use the recoverability test to determine.
The steps to determine are: 1. Estimate the future cash flow of asset 2. If the sum of the expected cash flow is less than the carrying amount of the asset, the asset is considered impaired Depletion and amortization are similar concepts for minerals and intangible assets, respectively. Depreciation expense does not require current outlay of cash. However, since depreciation is an expense to the P&L account, provided the enterprise is operating in a manner that covers its expenses depreciation is a source of cash in a statement of cash flows, which offsets the cash cost of acquiring new assets required to continue operations when existing assets reach the end of their useful lives. While depreciation expense is recorded on the income statement of a business, its impact is recorded in a separate account and disclosed on the balance sheet as accumulated depreciation, under fixed assets, according to most accounting principles. Accumulated depreciation is known as a contra account, because it separately shows a negative amount, directly associated with another account.
Without an accumulated depreciation account on the balance sheet, depreciation expense is charged against the relevant asset directly. The values of the fixed assets stated on the balance sheet will decline if the business has not inves
In economics, goods are materials that satisfy human wants and provide utility, for example, to a consumer making a purchase of a satisfying product. A common distinction is made between goods that are tangible property, services, which are non-physical. A good may be a consumable item, useful to people but scarce in relation to its demand, so that human effort is required to obtain it. In contrast, free goods, such as air, are in abundant supply and need no conscious effort to obtain them. Personal goods are things such as televisions, living room furniture, cellular telephones anything owned or used on a daily basis, not food related. Commercial goods are construed as any tangible product, manufactured and made available for supply to be used in an industry of commerce. Commercial goods could be tractors, commercial vehicles, mobile structures and roofing materials. Commercial and personal goods as categories are broad and cover everything a person sees from the time they wake up in their home, on their commute to work to their arrival at the workplace.
Commodities may be used as a synonym for economic goods but refer to marketable raw materials and primary products. Although in economic theory all goods are considered tangible, in reality certain classes of goods, such as information, only take intangible forms. For example, among other goods an apple is a tangible object, while news belongs to an intangible class of goods and can be perceived only by means of an instrument such as print or television. Goods may increase or decrease their utility directly or indirectly and may be described as having marginal utility; some things are useful, but not scarce enough to have monetary value, such as the Earth's atmosphere, these are referred to as'free goods'. In normal parlance, "goods" is always a plural word, but economists have long termed a single item of goods "a good". Ugly though this may sound, an alternative is hard to find. In economics, a bad is the opposite of a good. Whether an object is a good or a bad depends on each individual consumer and therefore, it is important to realize that not all goods are good all the time and not all goods are goods to all people.
Goods' diversity allows for their classification into different categories based on distinctive characteristics, such as tangibility and relative elasticity. A tangible good like an apple differs from an intangible good like information due to the impossibility of a person to physically hold the latter, whereas the former occupies physical space. Intangible goods differ from services in that final goods are transferable and can be traded, whereas a service cannot. Price elasticity differentiates types of goods. An elastic good is one for which there is a large change in quantity due to a small change in price, therefore is to be part of a family of substitute goods. An inelastic good is one for which there are few or no substitutes, such as tickets to major sporting events, original works by famous artists, prescription medicine such as insulin. Complementary goods are more inelastic than goods in a family of substitutes. For example, if a rise in the price of beef results in a decrease in the quantity of beef demanded, it is that the quantity of hamburger buns demanded will drop, despite no change in buns' prices.
This is. It is important to note that goods considered complements or substitutes are relative associations and should not be understood in a vacuum; the degree to which a good is a substitute or a complement depends on its relationship to other goods, rather than an intrinsic characteristic, can be measured as cross elasticity of demand by employing statistical techniques such as covariance and correlation. The following chart illustrates the classification of goods according to their exclusivity and competitiveness. Goods are capable of being physically delivered to a consumer. Goods that are economic intangibles can only be stored and consumed by means of media. Goods, both tangibles and intangibles, may involve the transfer of product ownership to the consumer. Services do not involve transfer of ownership of the service itself, but may involve transfer of ownership of goods developed or marketed by a service provider in the course of the service. For example, sale of storage related goods, which could consist of storage sheds, storage containers, storage buildings as tangibles or storage supplies such as boxes, bubble wrap, tape and the like which are consumables, or distributing electricity among consumers is a service provided by an electric utility company.
This service can only be experienced through the consumption of electrical energy, available in a variety of voltages and, in this case, is the economic goods produced by the electric utility company. While the service is a process that remains in its entirety in the ownership of the electric service provider, the goods is the object of ownership transfer; the consumer becomes electric energy owner by purchase and may use it for any lawful purposes just like any other goods. Fast-moving consumer goods Final goods Intangible asset Intangible good List of economics topics Goods and services Service Tangible property Bannock, Graham et al.. Dictionary of Economics, Penguin Books. Milgate, Murray, "goods and commodities," The New Palgrave: A Dictionary of Economics, v. 2, pp. 546–48. Includes historical and contemporary uses of the terms in economics. Media related to Good
Tobin's q is the ratio between a physical asset's market value and its replacement value. It was first introduced by Nicholas Kaldor in 1966 in his article "Marginal Productivity and the Macro-Economic Theories of Distribution: Comment on Samuelson and Modigliani", it was popularised a decade however, by James Tobin, who describes its two quantities: One, the numerator, is the market valuation: the going price in the market for exchanging existing assets. The other, the denominator, is the replacement or reproduction cost: the price in the market for newly produced commodities. We believe that this ratio has considerable macroeconomic significance and usefulness, as the nexus between financial markets and markets for goods and services. Although it is not the direct equivalent of Tobin's q, it has become common practice in the finance literature to calculate the ratio by comparing the market value of a company's equity and liabilities with its corresponding book values, as the replacement values of a company's assets is hard to estimate: Tobin's q = It is common practice to assume equivalence of the liabilities market and book value, yielding: Tobin's q =.
If market and book value of liabilities are assumed to be equal, this not equal to the "Market to Book Ratio" or "Price to Book Ratio", used in financial analysis. The latter ratio is only calculated for equity values: Market to Book Ratio= Equity Market Value Equity Book Value. Financial analysis often uses the inverse of this ratio, the "Book to Market Ratio", i.e. Book to Market Ratio= Equity Book Value Equity Market Value For stock-listed companies, the market value of equity or market capitalization is quoted in financial databases, it can be calculated for a specific point in time by number of shares × share price. Another use for q is to determine the valuation of the whole market in ratio to the aggregate corporate assets; the formula for this is: q = value of stock market corporate net worth The following graph is an example of Tobin's q for all U. S. corporations. The line shows the ratio of the US stock market value to US net assets at replacement cost since 1900. If the market value reflected the recorded assets of a company, Tobin's q would be 1.0.
If Tobin's q is greater than 1.0 the market value is greater than the value of the company's recorded assets. This suggests that the market value reflects some unrecorded assets of the company. High Tobin's q values encourage companies to invest more in capital because they are "worth" more than the price they paid for them. Q = Market value of installed capital Replacement cost of capital If a company's stock price is $2 and the price of the capital in the current market is $1, the company can issue shares and with the proceeds invest in capital. In this case q>1. On the other hand, if Tobin's q is less than 1, the market value is less than the recorded value of the assets of the company; this suggests. John Mihaljevic points out that "no straightforward balancing mechanism exists in the case of low Q ratios, i.e. when the market is valuing an asset below its replacement cost. When Q is less than parity, the market seems to be saying that the deployed real assets will not earn a sufficient rate of return and that, the owners of such assets must accept a discount to the replacement value if they desire to sell their assets in the market.
If the real assets can be sold off at replacement cost, for example via an asset liquidation, such an action would be beneficial to shareholders because it would drive the Q ratio back up toward parity. In the case of the stock market as a whole, rather than a single firm, the conclusion that assets should be liquidated does not apply. A low Q ratio for the entire market does not mean that blanket redeployment of resources across the economy will create value. Instead, when market-wide Q is less than parity, investors are being overly pessimistic about future asset returns." Lang and Stulz found out that diversified companies have a lower Q-ratio than focused firms because the market penalizes the value of the firm assets. Tobin's discoveries show us that movements in stock prices will be reflected in changes in consumption and investment, although empirical evidence reveals that his discoveries are not as tight as one would have thought; this is because firms do not blindly base fixed investment decisions on movements in the stock price.
Tobin's q measures two variables - the current price of capital asse
Human capital is the stock of knowledge, habits and personality attributes, including creativity, embodied in the ability to perform labor so as to produce economic value. Human capital theory is associated with the study of human resources management as found in the practice of business administration and macroeconomics; the original idea of human capital can be traced back at least to Adam Smith in the 18th century. The modern theory was popularized by Gary Becker, an economist and Nobel Laureate from the University of Chicago, Jacob Mincer, Theodore Schultz; as a result of his conceptualization and modeling work using Human Capital as a key factor, the Nobel Prize for Economics, 2018, was awarded to Paul Romer who founded the modern innovation-driven approach to understanding economic growth. Human capital differs from any other capital, it is needed for companies to achieve goals and remain innovative. Companies can invest in human capital for example through education and training enabling improved levels of quality and production.
In the recent literature, the new concept of task-specific human capital was coined in 2004 by Robert Gibbon, an economist at MIT, Michael Waldman, an economist at Cornell. The concept emphasizes that in many cases, human capital is accumulated specific to the nature of the task, the human capital accumulated for the task are valuable to many firms requiring the transferable skills; this concept can be applied to job-assignment, wage dynamics, promotion dynamics inside firms, etc. Arthur Lewis is said to have begun the field of development economics and the idea of human capital when he wrote in 1954 "Economic Development with Unlimited Supplies of Labour." The term "human capital" was not used due to its negative undertones until it was first discussed by Arthur Cecil Pigou: There is such a thing as investment in human capital as well as investment in material capital. So soon as this is recognised, the distinction between economy in consumption and economy in investment becomes blurred. For, up to a point, consumption is investment in personal productive capacity.
This is important in connection with children: to reduce unduly expenditure on their consumption may lower their efficiency in after-life. For adults, after we have descended a certain distance along the scale of wealth, so that we are beyond the region of luxuries and "unnecessary" comforts, a check to personal consumption is a check to investment; the use of the term in the modern neoclassical economic literature dates back to Jacob Mincer's article "Investment in Human Capital and Personal Income Distribution" in the Journal of Political Economy in 1958. Theodore Schultz contributed to the development of the subject matter; the best-known application of the idea of "human capital" in economics is that of Mincer and Gary Becker of the "Chicago School" of economics. Becker's book entitled Human Capital, published in 1964, became a standard reference for many years. In this view, human capital is similar to "physical means of production", e.g. factories and machines: one can invest in human capital and one's outputs depend on the rate of return on the human capital one owns.
Thus, human capital is a means of production, into which additional investment yields additional output. Human capital is substitutable, but not labor, or fixed capital; some contemporary growth theories see human capital as an important economic growth factor. Further research shows the relevance of education for the economic welfare of people. Adam Smith defined four types of fixed capital; the four types were: instruments of the trade. Smith defined human capital as follows: Fourthly, of the acquired and useful abilities of all the inhabitants or members of the society; the acquisition of such talents, by the maintenance of the acquirer during his education, study, or apprenticeship, always costs a real expense, a capital fixed and realized, as it were, in his person. Those talents, as they make a part of his fortune, so do they that of the society to which he belongs; the improved dexterity of a workman may be considered in the same light as a machine or instrument of trade which facilitates and abridges labor, which, though it costs a certain expense, repays that expense with a profit.
Therefore, Smith argued, the productive power of labor are both dependent on the division of labor: The greatest improvement in the productive powers of labour, the greater part of the skill and judgement with which it is any where directed, or applied, seem to have been the effects of the division of labour. There is a complex relationship between the division of labor and human capital. Human capital is a collection of traits – all the knowledge, skills, experience, training and wisdom possessed individually and collectively by individuals in a population; these resources are the total capacity of the people that represents a form of wealth which can be directed to accomplish the goals of the nation or state or a portion thereof. The human capital is further distributed into three kinds.