Government Spending: This component of the equation covers government’s expenditure on
various public projects, goods and services, development etc. This component can also be
divided mainly into two parts- transfer payment and development expenditure (Goodwin and
Harris, 2016). Transfer payment includes government’s expense on the social safety net,
pension fund, gratuity fund, unemployment benefits, various stipends and subsidies.
development expenditure includes expenditure in building public accommodation like roads,
highways, schools, hospitals etc. these expenses lead to improve the living standard of the
nation and increase the overall facilities provided by the government which eventually leads to
higher economic growth.