📚 Learning Guide
Aggregate Demand and Supply Analysis
medium

How does an increase in government spending, as a part of fiscal policy, typically affect the aggregate demand curve?

Master this concept with our detailed explanation and step-by-step learning approach

Learning Path
Learning Path

Question & Answer
1
Understand Question
2
Review Options
3
Learn Explanation
4
Explore Topic

Choose the Best Answer

A

It shifts the aggregate demand curve to the left

B

It shifts the aggregate demand curve to the right

C

It has no effect on the aggregate demand curve

D

It causes a movement along the aggregate demand curve

Understanding the Answer

Let's break down why this is correct

Answer

When the government increases its spending, it usually leads to a rise in aggregate demand. This is because government spending injects money into the economy, which can create jobs and boost consumer confidence. As people earn more money, they tend to spend more on goods and services, which further increases demand. For example, if the government builds new schools, construction workers get paid, and they use that money to buy food, clothes, and other items. Overall, this increased spending shifts the aggregate demand curve to the right, indicating more demand for goods and services at every price level.

Detailed Explanation

When the government spends more money, it puts more cash into the economy. Other options are incorrect because Some might think that more spending means less demand; It's a common mistake to think spending has no effect.

Key Concepts

Shifts in Demand
Fiscal Policy
Topic

Aggregate Demand and Supply Analysis

Difficulty

medium level question

Cognitive Level

understand

Ready to Master More Topics?

Join thousands of students using Seekh's interactive learning platform to excel in their studies with personalized practice and detailed explanations.