Describe the probable impact of an increase in government spending assuming no change in taxes or private spending and less than full-employment output.

What will be an ideal response?


Assuming no change in taxes or private spending, the probable effect of an increase in government spending will be expansionary. Furthermore, the government spending increase will be multiplied in terms of its impact on equilibrium GDP. The simple multiplier in this case should equal the reciprocal of the marginal propensity to save.

Economics

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