Public expenditure is government spending only

Steps:

• Define public expenditure as outlays by central, state, or local governments on goods, services, transfers, and investments.
• Review choices: Identify which involve government entities versus private ones.
• Eliminate C and D as they directly reference government actions.
• Select A as it specifies private firms, excluding it from public category.

Why A is correct:

• Capital spending by firms constitutes private sector investment, excluded from public expenditure defined as government budgetary outlays (per standard public finance principles).

Why the others are wrong:

• B: Interest payments by firms can include public sector obligations like debt servicing, part of government revenue expenditure.
• C: Defence investment by central government is capital expenditure in the public budget.
• D: Subsidies from local government are transfer payments within public expenditure.

Final answer: A