How can an increase in government spending affect the economy?

Government spending (G) is a component of aggregate demand. The aggregate demand (AD) equation is Y = C + I + G + NX. It measures the total demand for goods and services in the economy. Using a diagram we can draw AD and show how a shift in G will affect the macroeconomy. (show on diagram). Thus an increase in G increases inflation and national income by increasing aggregate demand.

Answered by Economics tutor

2603 Views

See similar Economics A Level tutors

Related Economics A Level answers

All answers ▸

To what extent can financial regulation correct financial market failure?


What is the profit maximising condition? (Hard A-Level question for full marks)


Explain the difference between the Monetarist and Keynesian views of unemployment


Why can customs unions lead to higher prices for consumers?


We're here to help

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

MyTutor is part of the IXL family of brands:

© 2025 by IXL Learning