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.

CA
Answered by Caroline A. Economics tutor

1995 Views

See similar Economics A Level tutors

Related Economics A Level answers

All answers ▸

What are Consumer Surplus and Producer Surplus?


What is GDP and is it a useful indicator to measure the standard of living?


Explain one disadvantage of increasing the budget deficit


What is the difference between perfect competition and imperfect competition?


We're here to help

contact us iconContact ustelephone icon+44 (0) 203 773 6020
Facebook logoInstagram logoLinkedIn logo

MyTutor is part of the IXL family of brands:

© 2026 by IXL Learning