How will an increase in government expenditures during a recession be reflected in GDP?
A) An increase in government spending will reduce aggregate demand and decrease GDP.
B) An increase in government spending will not affect GDP.
C) An increase in government spending will increase GDP, but only if it is directed toward economically productive projects.
D) The government spending will increase GDP even if the spending encourages rent seeking and other unproductive activities.

Question

Quizplus · Accepted Answer

An increase in government expenditures during a recession will increase GDP because government spending is a component of GDP (specifically, it is part of aggregate demand). Even if the spending is not economically productive, it still contributes to GDP in the short term.

How Will an Increase in Government Expenditures During a Recession