We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What are Government Purchases?

Malcolm Tatum
By
Updated May 17, 2024
Our promise to you
WiseGeek is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At WiseGeek, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

Government purchases are any type of purchase activity that takes place between a municipal, state, or national government entity. While the main focus of these types of purchases are to supply the government with goods and services needed for efficient operation, this approach can also be utilized to stimulate activity within a given sector of the economy. By doing so, the government is able to minimize the general damage that a decline in that particular industry would have on the general economy, often by preventing job losses in both the targeted industry and industries that are dependent on that target.

Using government purchases as an economic tool is a basic of Keynesian economics, in which the process of stimulating demand for certain products can aid in offsetting lower consumer demand and keep selected industries functioning at acceptable levels until that demand increases once again. Over the long term, this has the effect of slowing the progression of an economic downturn, which in turn makes the recovery period shorter and easier to manage.

The strategy of using government purchases to stabilize an economy also plays a role in what is known as Gibson’s Paradox. Noted by Keynes in the early years of the 20th century, this paradox holds that current levels of wholesale prices directly impact the rise and fall of interest rates. When a government steps in to purchase products as a means of dealing with a current economic downturn, those wholesale prices are affected by the rates extended for the government purchases. This allows the government to indirectly influence the current interest rates in whatever way is believed to be most beneficial for the general economy.

Government purchases can be something as simple as creating broad contracts that allow multiple agencies to obtain special prices for product like telecommunications services, or may relate to a specific project such as contracting with a road builder to pave a section of highway. Ideally, the purchase activity has the dual effect of positively influencing the economy and also providing the government with something that is needed. It is also possible for a government to purchase goods and stockpile them as a means of stimulating the economy, then sell them incrementally at a later date once the economy has stabilized. The exact strategies that may be employed with government purchases depends greatly on any laws that are used to set fiscal policy for the jurisdiction, the resources available to make the purchase, and the anticipated benefits that are to be derived from those purchases.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Malcolm Tatum
By Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including WiseGeek, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.
Discussion Comments
Malcolm Tatum
Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
Learn more
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.