Answer to Question #49278 in Macroeconomics for sanghamita ghosh
The increased government spending may create a multiplier effect. If government spending causes the unemployed to gain jobs then they will have more income to spend leading to a further increase in aggregate demand. (e.g. construction workers employed by government increase spending in pubs and transport, causing other sectors of the economy to benefit from the government spending). In these situations of spare capacity in the economy, the government spending may cause a bigger final increase in GDP than the initial injection.
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