Government Capital/Investment Expenditure (G2)

This is spending by the government on capital goods. The majority of G2 is on infrastructure. G2 provides the framework that will encourage greater I spending. G2 accounts for about five per cent of aggregate demand and, while more volatile than G1, is still considered relatively stable.

You should note that transfer payments made by the government, including unemployment benefits and the aged pension, are not included in either G1 or G2 because they are not a payment for a good or service. Transfer payments do, however, increase disposable income, so they therefore influence C.