The government spending on given goods and several services including public. This is government spending on state-provided goods and services including public and merit goods. Decisions on how much the government will spend each year are affected by developments in the economy and also the changing political priorities of the government. In a normal year, government purchases of goods and services accounts for around twenty per cent of aggregate demand. We will return to this again when we look at how the government runs its fiscal policy.

Transfer payments in the form of welfare benefits (e.g. state pensions and the job-seekers allowance) are not included in general government spending because they are not a payment to a factor of production for any output produced. They are simply a transfer from one group within the economy (i.e. people in work paying income taxes) to another group (i.e. pensioners drawing their state pension having retired from the labour force, or families on low incomes.

The next two components of aggregate demand relate to international trade in goods and services between the UK economy and the rest of the world.

As the Government going through the recession. They will have to cut down their everyday expenditure. If the government raised spending then they will have to borrow more and will have to spend more on every department as like education, health, transportation etc.

So by decreasing the net supply of money into these departments then they won't have to borrow a lot of money from the banks and to pay a lot of interest rates.