Explain how a change in Government spending may affect the average price level and real GDP

Government spending is the total expenditure by the Government on the public sector in an economy. An increase of this is known as expansionary fiscal policy. This increases aggregate demand, causing a shift in the aggregate demand curve to the right. This results in a new macroeconomic equilibrium, with an increase in the average price level, which is called demand pull inflation. The shift in the AD curve is also accompanied by an increase in Real GDP which is economic growth. (Diagram)

JS
Answered by Jack S. Economics tutor

1525 Views

See similar Economics A Level tutors

Related Economics A Level answers

All answers ▸

Are there any costs as well as benefits to globalisation


Explain two causes of price inflation


What is the difference between actual output and and potential output?


How can I evaluate the extent to which increased competition leads to higher levels of economic efficiency?


We're here to help

contact us iconContact ustelephone icon+44 (0) 203 773 6020
Facebook logoInstagram logoLinkedIn logo

© MyTutorWeb Ltd 2013–2025

Terms & Conditions|Privacy Policy
Cookie Preferences