What is the difference between government expenditures and government purchases?

Question

1. What is the difference between government expenditures and government purchases? How do the two variables differ in terms of their effect on GDP?
2. Federally funded student aid programs generally reduce benefits by $1 for every $1 that recipients earn. Do such programs represent government purchases or transfer payments? Are they automatic stabilizers?
3. Crowding out reduces the degree to which a change in government purchases influences the level of economic activity. Is it a form of automatic stabilizer?

Explanation / Answer

1 Government purchases are included in government expenditures

Purchases are the items bought; expenditures are the finances used for any outgoing transaction (the costs or the transaction itself). Many expenditures do not purchase a physical item. E.g., a soldier's wages is an expenditure but the soldier was not purchased. Another example: donating money to another country is an expenditure on the government fiscal books but nothing was purchased.

On the other hand, purchases are included in expenditures.

2 They are transfer payments and are automatic stabilizers

3 Crowding out is the tendency for an expansionary fiscal policy to reduce other components of aggregate demand. Increased government spending raises interest rates causing less consumption and investment.

It is not stabilizg

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