If the federal government raises government expenditure:
A)aggregate expenditure will fall, leading to a decrease in equilibrium GDP.
B)consumption and investment will increase, leading to a rise in aggregate expenditure and an increase in equilibrium GDP.
C)aggregate expenditure will rise, leading to an increase in equilibrium GDP.
D)the government will experience a budget deficit, which will lower aggregate expenditure.

Question

Quizplus · Accepted Answer

An increase in government expenditure leads to an increase in aggregate expenditure, which in turn leads to an increase in equilibrium GDP. Government spending directly contributes to the GDP, as it adds to the total demand in the economy. Thus, an increase in government expenditure would result in a rise in equilibrium GDP.

If the Federal Government Raises Government Expenditure