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Other things equal, an increase in government spending will have what effect on an economy's aggregate demand curve?

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Tundexi

Most likely, an increased government spending will create a multiplier effect and causes the unemployed to gain jobs then they will have more income to spend leading to a further increase in aggregate demand.

What is an increase in government spending?

The keynes theory sees the increased government spending as a factor that raises aggregate demand and increases consumption, which leads to increased production and faster recovery from recessions.

Hence, an Increased government spending will likely to cause a rise in aggregate demand (AD) and this can lead to higher growth in the short-term but can also potentially lead to inflation.

Read more about government spending

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