Explain how government spending can lead to an increase in economic growth

Short run economic growth is known as Aggregate demand, otherwise known as GDP. Long run economic growth is known as Aggregate supply, otherwise known as real GDP. Government spending is a compenent of the aggregate demand equation, and can also influence aggregate supply due to infrastructural enhancements such as more spending on healthcare. If the government was to increase spending on healthcare for example, the aggregate demand of an economy would increase due to 'G' being a compenent of AD. This would be shown by a shift to the right in the AD curve. Furthermore, theoretically, this would allow workers to be more fit, and allow unfit workers to be able to recover from injuries/illnesses faster. This would allow a stronger and larger workforce, and hence productivity would increase. This can be shown by an increase in aggregate supply. The overall effects of this could be shown in a graph, where real GDP would increase, and in some cases, inflation may rise.

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Answered by Hassan H. Economics tutor

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