CBSE Class 12-commerce Answered
What is the effect of changes in government expenditure?
Asked by Topperlearning User | 19 Apr, 2016, 09:41: AM
Expert Answer
Effect of increase in government spending and the taxes remain constant. When government purchases, G, exceeds taxes, T, the government runs a deficit budget. G is a component of aggregate spending which increases the planned aggregate expenditure. At the given level of output, demand exceeds supply and firms expand their production. The aggregate demand schedule shifts up to AD.As the government expenditure increases from G0 to G1, it causes an equilibrium income to increase from Y0 to Y1. Now, the new equilibrium point is at E1.
Answered by | 19 Apr, 2016, 11:41: AM
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