How can an increase in government spending affect the economy?

Government spending (G) is a component of aggregate demand. The aggregate demand (AD) equation is Y = C + I + G + NX. It measures the total demand for goods and services in the economy. Using a diagram we can draw AD and show how a shift in G will affect the macroeconomy. (show on diagram). Thus an increase in G increases inflation and national income by increasing aggregate demand.

Answered by Economics tutor

2584 Views

See similar Economics A Level tutors

Related Economics A Level answers

All answers ▸

Describe and explain the factors that determine supply and demand, and use diagrams to support your answer.


Evaluate the impact of the introduction of a sugar tax on fizzy drinks in the UK.


In February 2013, the proposed takeover by Barr of Britvic was referred to the Competition Commission for investigation. There were likely to have been concerns that the takeover would lead to...


Explain the possible causes of deflation in an economy. (15)


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:

© 2025 by IXL Learning