How does an increase in government spending influence aggregate demand and investment spending in an economy?

When the government increases its spending, it puts more money into the economy. This extra money can lead to more jobs and higher incomes for people, which means they can spend more on goods and services. As people buy more, businesses see an increase in demand for their products, prompting them to invest in more production, hire additional workers, and possibly expand their operations. For example, if the government builds a new highway, construction workers are paid, and they will spend their income in local shops, boosting overall demand. As a result, this cycle of increased government spending leads to higher aggregate demand and encourages investment spending by businesses.