what are government purchases 
government purchases are expenditures on goods and services by federal state and local governments the combined total of this spending excluding transfer payments and interest on the debt is a key factor in determining a nation s gross domestic product gdp transfer payments are expenditures that do not involve purchases such as social security payments welfare and government subsidies for certain businesses understanding government purchasesone method of calculating gdp a measure of the market value of all the final goods and services produced in a specific time period within a country s borders that s used to track the health of a nation s economy is to add up all spending in four major categories the u s bureau of economic analysis bea has a number of sub categories for instance it breaks down government purchases into federal state and local spending and also differentiates defense related federal spending from all other spending the total for imported goods is subtracted from the final gdp total 2government purchases have risen in real terms over recent decades as a share of overall nominal gdp however nominal government purchases have been falling special considerationsgovernment purchases are seen as a crucial element of a healthy economy in keynesian economic theory that is increasing or decreasing government spending is viewed as a key tool for regulating the business cycle according to this theory government spending boosts demand in two ways first the government directly boosts demand by purchasing goods such as the steel needed to build a bridge secondly it puts money in the pockets of both workers and suppliers who then spend it on goods and services this is known as the multiplier effect plenty of other economists are against the government spending lots of money arguing that such action distorts interest rates props up non competitive firms and leads to higher taxes and so forth types of government purchasesgovernment purchases range from spending on infrastructure projects and paying civil service and public service employees to buying office software and equipment and maintaining public buildings transfer payments which do not involve purchases are not included in this category the bea attributed a rise in federal government spending in 2020 mainly to an increase in purchases of intermediate services to support the processing and administration of paycheck protection program loan applications 3in 2020 the bea revealed that federal government spending rose while state and local government spending fell overall real gdp in a year overshadowed by crisis and the economically damaging lockdown measures was estimated to have fallen by 3 5 4