Answer to Question #47015 in Microeconomics for Yoyo

Question

The sentence below is an example of a purely positive economic statement.
“During a recession the government must increase its spending to replace reduced private spending and reduce unemployment even if this leads to an increase in the national debt.” Please explain in detail why this statement is true.

Answer 1

Government spending or expenditure includes all government consumption, investment, and transfer payments. In national income accounting the acquisition by governments, of goods and services for current use, to directly satisfy the individual or collective needs of the community, is classed as government final consumption expenditure. Government acquisition of goods and services intended to create future benefits, such as infrastructure investment or research spending, is classed as government investment (government gross capital formation). These two types of government spending, on final consumption and on gross capital formation, together constitute one of the major components of gross domestic product.
So, during a recession one of the ways to improve the situation in the economy is increase in government spending, so the statement is true.