Syndicate
G Stands For Government
In most countries, the government consumes a great amount of the GDP. In the United States for example, the government consumes in the local, state and federal levels around thirty five percent of the GDP. In other countries the proportion is even higher so.
The government obtains the money to buy that product from the taxes and loans. If the tax income of a government is the same as its expenses, it has a balanced budget. If the tax income is higher then the expenses, it has a budget surplus. But if the expenses exceed its income, which can happen by borrowing the difference in the financial markets, it will have a budget deficit.
The government solicits loans through the selling of bonds. A typical bond says that for exchange of $10,000 in a given moment, the government will give back the same $10,000 in ten years, and, in the meanwhile, will pay $1,000 in each one of the intermediary years. If the conditions are accepted and the bond is bought, you will in effect be loaning the government $10,000 right now and obtaining a returned percent per year until the government gives you back the $10,000 within ten years.
In order to determine how much the government is going to spend in a given year, a big political fight goes on. There are many groups that push in favor of special programs to benefit their cities or their industry, and, above it all, the governments have to exercise special functions such as national defense and the fulfillment of the law.
However, economists are not aware of the political schemes that go along with the determination of prices of the government because the economic effects of the G prices depend on how big the expense is, not on the process that determines its size.
G not only includes the expenses of the government on goods and services recently produced. It does not include the expenses of the government that limit themselves to transferring money from one person to another. For example, when the government charges you taxes and gives the money to a poor person, the transaction does not have anything to do with the goods and services produced and as a result, it does not count as part of G. So, remember that when we are talking about G, we are only talking about the government purchases of goods and services currently produced.