Photo AI
The Government's Summer Economic Statement has confirmed that it will increase capital spending by €500m each year from 2019 to 2021 - Leaving Cert Economics - Question (c) - 2018
Question (c)
The Government's Summer Economic Statement has confirmed that it will increase capital spending by €500m each year from 2019 to 2021. (Source: www.rte.ie, 2017) ... show full transcript
Worked Solution & Example Answer:The Government's Summer Economic Statement has confirmed that it will increase capital spending by €500m each year from 2019 to 2021 - Leaving Cert Economics - Question (c) - 2018
Step 1
Explain three economic arguments in favour of an increase in government capital expenditure in the Irish economy.
Answer
-
Increased Demand for Housing
The rapid economic recovery has led to heightened demand for housing. With approximately 25,000 new houses required annually, increasing capital expenditure will help address this urgent need, ensuring more families have access to affordable housing. -
Promote Balanced Regional Development
Investing in capital projects can stimulate economic growth across different regions. Targeted investment aims to balance economic activity, ensuring that cities and rural areas alike can benefit from improved infrastructure, thus reducing regional disparities. -
Build on the Productivity of the Economy / Attract FDI
Enhanced public infrastructure is crucial for competitiveness. By improving transport and utility systems, the government can create a more conducive environment for foreign direct investment (FDI), contributing positively to the Irish economy.
Step 2
Discuss how this planned expenditure on capital projects (i.e. large infrastructural projects) by the Irish government may conflict with any two other government objectives.
Answer
-
Could be Inflationary
The increased capital spending has the potential to contribute to an overheated economy, as it might lead to excessive demand, further increasing inflation. This scenario can subsequently drive up construction costs, making it challenging for the government to control price levels effectively. -
Opportunity Cost
Allocating a significant amount of funds to capital projects means that these resources cannot be used for other essential services, such as education or healthcare. Therefore, the government may face challenges in achieving an equitable distribution of resources, impacting overall social welfare.