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Suppose the government increases its expenditures for a short term. What would the macroeconomic effects be?...

Suppose the government increases its expenditures for a short term.

What would the macroeconomic effects be?

Based on the results of your analysis, do you think variations in government expenditures could explain the fluctuations we observe in business cycles? Why or why not?

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Answer #1

Government increase expenditure effect on macroeconomics :-

Enlarged government spending is likely to source a rise in aggregate demand (AD). This can accompany to higher growth in the short-term. It can also likely lead to inflation.
Bigger government spending will also have an effect on the supply-side of the economy – determined on which area of government spending is rised. If spending is concentrated on improving infrastructure, this could accompany to increased productivity and a increase in the long-run aggregate supply. If spending is concentrated on welfare benefits or pensions, it may decrease inequality, but it could crowd out more productive private sector investment.
The variations in government expenditures could explain the fluctuations observe in the business cycles.Variations in government spending are cause of business fluctuations.

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