ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The increased government spending may create a multiplier effect. If the government spending causes the unemployed to gain jobs then they will have more income to spend leading to a further increase in aggregate demand.

Detailed explanation-2: -An increase in government expenditure, or a decrease in the tax rate, stimulates spending, output, and employment. However, once full employment has been achieved, the stimulative effect of the government deficit becomes inflationary.

Detailed explanation-3: -According to Keynesian economics, increased government spending raises aggregate demand and increases consumption, which leads to increased production and faster recovery from recessions.

Detailed explanation-4: -The increase in government spending will have a larger effect on aggregate demand would be larger if the Fed were committed to maintaining the fixed interest rate, since in this case the negative crowding out effect would be compensated for.

Detailed explanation-5: -Economic growth – A country’s economic growth is based on the rate of investments and savings. Therefore, the budgetary plan focuses on preparing adequate resources for investing in the public sector and raising the overall rate of investments and savings.