2.2.4 Government spending (G)

• What is Aggregate Demand (AD)?

  Total demand in an economy
• Consumption (C) refers to spending by households
• What does Investment (I) refer to in the context of AD?

  Business spending on capital goods
• Government Spending (G) includes public sector expenditure on goods and services.
• Net Exports (X-M) is the difference between exports and imports
• What is the formula for Aggregate Demand (AD)?

  $AD =$$C +$$I +$$G +$$(X - M)$
• Consumption (C) includes household spending on goods and services
• Government Spending (G) includes public expenditure on healthcare and education.
• What does Net Exports (X-M) reflect in the context of AD?

  Net trade balance
• Match the component of AD with its definition:

  Consumption (C) ↔️ Household spending on goods and services

  Investment (I) ↔️ Business spending on capital goods

  Government Spending (G) ↔️ Public sector expenditure

  Net Exports (X-M) ↔️ Exports minus imports
• What is the primary focus of Government Spending (G)?

  Public sector expenditure
• The formula for Aggregate Demand (AD) is $AD =$$C +$$I +$$G +$$(X - M)$
• Match the component of AD with its definition:

  Investment (I) ↔️ Business spending on capital goods and research

  Government Spending (G) ↔️ Public sector expenditure

  Net Exports (X-M) ↔️ Exports minus imports
• What is Government Spending (G) in economics?

  Total expenditure by the public sector
• Government spending can be classified into two main categories: current expenditures and capital expenditures.
• Current expenditures include routine day-to-day operational costs of the public sector.
• What is the purpose of capital expenditures in government spending?

  Long-term infrastructure investments
• Current expenditures in government spending include salaries of public sector employees.
• What is an example of a capital expenditure by the government?

  New roads
• Where does Government Spending (G) appear in the AD formula?

  AD = C + I + G + (X - M)</latex>
• How does an increase in Government Spending (G) affect the Aggregate Demand (AD) curve?

  Shifts it to the right
• The multiplier effect measures the increase in AD resulting from a change in Government Spending.
• What is an example of a government investment that triggers the multiplier effect?

  Infrastructure projects
• A decrease in Government Spending (G) shifts the AD curve to the left.
• What does the formula $AD =$$C +$$I +$$G +$$(X - M)$ represent?


  Aggregate Demand
• In the formula for Aggregate Demand, the variable $G$ stands for government spending
• If the government increases spending by $1$, the actual increase in AD can be greater than $1$ due to the multiplier effect.
• The multiplier effect is calculated as $Multiplier =$$\frac{\Delta AD}{\Delta G}$, where $\Delta AD$ represents the change in aggregate demand.
• What is an example of government investment that can increase Aggregate Demand?

  Infrastructure projects
• An increase in government spending shifts the AD curve to the right.
• Sequence the effects of an increase in government spending on Aggregate Demand.

  1️⃣ Government spending increases

  2️⃣ Increased wages for workers

  3️⃣ Demand for materials rises

  4️⃣ Economic activity boosts

  5️⃣ Aggregate Demand increases
• How does government spending influence Aggregate Demand?

  Increases it
• The multiplier effect is a result of successive rounds of spending and earning throughout the economy.
• What does Aggregate Demand represent?

  Total demand for goods
• Household spending on goods and services is called consumption
• Match the component of Aggregate Demand with its definition:

  Consumption (C) ↔️ Household spending on goods and services

  Investment (I) ↔️ Business spending on capital goods

  Government Spending (G) ↔️ Public sector expenditure

  Net Exports (X-M) ↔️ Exports minus imports
• What is the formula for Aggregate Demand?

  $AD =$$C +$$I +$$G +$$(X - M)$
• Household spending on entertainment is an example of consumption
• Government spending on education is a type of capital expenditure.
• What is investment in the context of Aggregate Demand?

  Business spending on capital