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

2155 Views

See similar Economics A Level tutors

Related Economics A Level answers

All answers ▸

What two policies can the government employ to influence economic growth and inflation?


What is the law of diminishing (marginal) returns?


Should the United Kingdom Government rely on market forces to redistribute income and wealth, to make it fairer or intervene to do so?


Evaluate the view that all firms aim to profit maximise


We're here to help

contact us iconContact usWhatsapp logoMessage us on Whatsapptelephone icon+44 (0) 203 773 6020
Facebook logoInstagram logoLinkedIn logo

© MyTutorWeb Ltd 2013–2025

Terms & Conditions|Privacy Policy
Cookie Preferences