Changes in government spending affect aggregate demand from "summary" of Principles of Macroeconomics by N. Gregory Mankiw
Changes in government spending have a significant impact on the overall demand in the economy. When the government decides to increase its spending on goods and services, it directly injects money into the economy. This injection of funds leads to an increase in aggregate demand as consumers and businesses have more money to spend. Conversely, if the government decides to cut back on its spending, it reduces the amount of money flowing into the economy. This reduction in government spending leads to a decrease in aggregate demand as there is less money available for consumers and businesses to spend. Government spending plays a crucial role in influencing the level of economic activity in the short run. By adjusting its spending levels, the government can stimulate or slow down economic growth, depending on the prevailing economic con...
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