Introduction:

Inflation can be defined as the condition where general price level of goods and services rising in
an economy over a certain period of time. It simply refers to the devaluation of the currency due
to rise in price level of goods and services. Inflation makes currency weaker and will decrease
real purchasing power of the money. As a result, people’s disposal income decreases and they
will be able to buy few items of goods and services. Inflation is usually calculated by the
percentage change in price index or consumer price index over a period of time. Inflation can
have both positive and negative impact in an economy. Rise in Inflation by 2%-3% per year is
said to be sustainable for an economy, whereas over 3% per year is alarming. Inflation are
caused by various factors such as interest rate, money supply, national debt, demand pull effect,
cost push effect, exchange rate, and so on. Most of these factors are the result of government
expenditure and government expenditure is the main driving force for inflation.

Analysis:
The term Government expenditure refers to the payments made by the national government to
carry out different productive and non-productive activities in an economy. It is one of the
components of aggregate demand and GDP of an economy. It simply is the combination
expenditure such as, government final consumption, investment and infrastructural development,
transfer payment and so on.
Government Final Consumption Expenditure (GFCE) refers to the payment made by
government to purchase goods and services so as to satisfy individual as well as
collective needs of the community. Non-market goods and services produced or
purchased by the government to fulfill need and want of members in the community by
supplying it in very insignificant price is known as government final consumption
expenditure.

Government Investment and Infrastructural Development covers huge amount of

government expenditure. Government investment and infrastructural development here
means all the expenditure made by nation’s government in the field of business,
technology, and infrastructure formation. Some of the expenditures of government are:
Road construction, building factories, expenditure in research and so on. Here,
expenditure is done for long-term use of goods and services by investing in fixed assets
or at intermediate goods for further processing.