Question

Suppose that the federal government is considering two alternative spending bills. The first would purchase land for $80 billion to protect an endangered species, while the second would use the $80 billion to build new highways. How would these spending bills affect the cash and capital accounts of the federal government?

Answer 1

Capital Accounts : It gives a summary of the capital expenditure and income for a country. It gives a summary of private and public investment into an economy. It includes FDI or other investment.

The federal government has two alternatives, one of them is purchasing land for protecting endangered species. It would be beneficial for the country or economy too. The expenditure would be spent on securing endangered species including plants and animals. Actually it is not spending ; it is an investment , Capital investment. Government is preserving forest ecosystem which leads to the bio-diversity. Biodiversity has the valuable role to play in securing environment which supposed to be as capital investment. Preserving the endangered species leads to good buisness of tourism. It will attracts the tourist from the various corners of the world. Some endangered species from plants are useful in medical science. Climate would be improved by the taking care of the nature in this way. So there are plenty of resources which would be beneficial for the economy as well as for the capital account of the federal government. This transaction of expenditure would be recorded and there will be reduction in the account of capital cause of payment.

If the federal government decide to spend on infrastructure like building highways. The volume of governments public sevices undoubtedly expanded and its benefits accrued to the governments cash and capital account. Change in physical or financial asset ownership for a nation is important for the capital account of federal government. Spending on the building highways is a transaction. It would be recorded in the building account for the acquisition of the infrastructure and a reduction in the Cash account for the payment made.

In this way, federal government would invest for long term for infrastructure and land acquisition for protecting endangered species will be beneficial for a country. It would reduce the cash from the federal governments capital account.