Government Spending in Aggregate Demand?
What is Government Spending as a Part of Aggregate Demand?
Written by J. Mance Gordon
Updated at April 23rd, 2024
- Marketing, Advertising, Sales & PR
- Accounting, Taxation, and Reporting
- Professionalism & Career Development
-
Law, Transactions, & Risk Management
Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
- Business Management & Operations
- Economics, Finance, & Analytics
- Courses
What is Government Spending as a Part of Aggregate Demand?
The third component of aggregate demand is federal, state, and local government spending. Although we usually view the United States as a market economy, government still plays a significant role in the economy. The government provides important public services such as national defense, transportation infrastructure, and education.
Keynes recognized that the government budget offered a powerful tool for influencing aggregate demand. Not only could more government spending stimulate AD (or less government spending reduce it), but lowering or raising tax rates could influence consumption and investment spending. Keynes concluded that during extreme times like deep recessions, only the government had the power and resources to move aggregate demand.
Related Topics
- Keynesian Perspective of Aggregate Demand
- Recessionary and Inflationary Gap
- Consumption Expenditure
- Investment Expenditure
- Government Spending in Aggregate Demand
- Net Exports in Aggregate Demand
- Keynesian Economic Analysis
- Wage and Price Stickiness
- Coordination Argument of Wage Stickiness
- What are Menu Costs
- Keynesian Assumptions in the Aggregate Demand and Aggregate Supply Model
- Macroeconomic Externality
- Expenditure Multiplier
- The Phillips Curve
- Keynesian Approach to Unemployment and Inflation
- Keynesian Perspective on Market Forces
- NeoClassical Economics
- Long Run Potential GDP
- Physical Capital Affects Productivity
- Potential GDP in the Aggregate Demand Aggregate Supply Model
- Prices are Flexible in the Long Run
- Keynesian and NeoClassical View of Long-Run Aggregate Supply and Demand
- Speed of Macroeconomic Adjustment of Wages and Prices
- Paradox of Rationality
- Rational Expectations Theory
- Shapley Value
- Mechanism Design Theory
- What is the Adaptive Expectations Theory
- Measure Inflation Expectations
- Neoclassical Phillips Curve Tradeoff
- Neoclassical View of Unemployment
- Neoclassical View of Recessions
- Keynesian vs Neoclassical Macroeconomic Policy Recommendations