explain the effect of a rise in government expenditure in the AD-AS framework

A rise in government expenditure shifts the aggregate demand to the right (Insert graph). We assume that there is no change to the aggregate supply and that this is a one time increase. In the short-run both aggregate price levels and real output increase. The economy is expanding. However this is not an equilibrium situation.In the long-term, this economy adjusts to the temporary positive shock in aggregate demand and it reverts to its original equilibrium level, i.e. the aggregate price level and the level of real output before the shift.

Answered by Caroline A. Economics tutor

1451 Views

See similar Economics A Level tutors

Related Economics A Level answers

All answers ▸

The government has introduced an ad valorem tax on petrol. The likely effect is: A) Increase in sales of petrol B) Increase in carbon emissions from electric cars C) Increase in demand for bus travel D) Decrease in sale of electric cars


Examine measures the government might use to restrict the monopsony power of supermarkets.


What is a monopoly?


Please can you explain the labour market?


We're here to help

contact us iconContact usWhatsapp logoMessage us on Whatsapptelephone icon+44 (0) 203 773 6020
Facebook logoInstagram logoLinkedIn logo
Cookie Preferences