Public expenditure covers only government spending

Steps:

• Define public expenditure as all spending by central, state, and local governments on goods, services, and transfers.
• Evaluate option A: Capital spending by firms is private sector investment, not government-funded.
• Evaluate options B, C, D: These involve direct government outlays or transfers.
• Conclude that only A falls outside the public sector.

Why A is correct:

• Public expenditure, per national income accounting, excludes private firm spending, which is classified under private investment in GDP formulas like Y = C + I + G + NX.

Why the others are wrong:

• B: Interest payments are a recurrent government expense on public debt.
• C: Defence investment is central government capital spending on public goods.
• D: Subsidies are local government transfers to support public services.

Final answer: A