An externality is defined as: the effect of an activity undertaken outside a building rather than inside a building. an effect of market activity that impacts the opposite side of the market from the side whose decision caused the effect. a side-effect of an activity that affects bystanders whose interests are not taken into account. the impact of an activity on buyers and sellers in the market where the activity takes place.

a side-effect of an activity that affects bystanders whose interests are not taken into account.

Explanation:

Externalities are side effects which can either be positive or negative that affect third parties n a transaction that they had no say over and whose interests were never taken into account.

The positive externalities benefit society but the negative ones reduce the overall welfare of society. For instance, the cigarette smoke from a smoker causing illness in another who wasn't smoking due to second hand smoke - this is negative.  

Government expenditures enter the economy through the compensation of public employees, purchases of goods and services from the private sector, and through transfer payments to individuals for social security, welfare, and other needs. These expenditures benefit industries, communities, and individual citizen