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Difficulty: EasyPublic Expenditure Classification and Growth

Match each government spending scenario on the left with its corresponding public expenditure classification on the right.

  • Construction of a new federal highway networkCapital expenditure
  • Monthly salary payments to public school teachersRecurrent expenditure
  • Financial aid paid directly to unemployed citizens without any service renderedTransfer payment

Answer

Construction of a highway network matches Capital expenditure; monthly salary payments to teachers match Recurrent expenditure; and financial aid to unemployed citizens matches Transfer payment.
Capital expenditure refers to government investments in durable physical assets like highways. Recurrent expenditure covers continuous operational expenses for maintaining daily services, such as salaries. Transfer payments represent government disbursements made without any corresponding goods or services provided, such as unemployment benefits.

Step-by-Step Solution

1
Classify spending on durable physical infrastructure.
Construction of a federal highway creates fixed physical assets, so it is capital expenditure.
Capital expenditure involves government spending on infrastructure and assets that yield benefits over a long period.
2
Classify spending on day-to-day operations and public sector wages.
Monthly salary payments to teachers are operational running costs, so they are recurrent expenditure.
Recurrent expenditure covers ongoing, recurring operational costs necessary to run government services within a financial year.
3
Classify government payouts where no productive contribution is exchanged.
Unemployment benefits do not involve the exchange of goods or services, so they are transfer payments.
Transfer payments are unearned government transfers aimed at redistributing income without receiving any productive output in return.

Key Concept

Classification of Public Expenditure (Capital, Recurrent, and Transfer Payments)
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Topics

Public Expenditure Classification and Growth

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