A decrease in government expenditure on goods and services
A) increases the aggregate quantity demanded.
B) decreases the aggregate quantity demanded.
C) decreases aggregate demand.
D) increases aggregate demand.

Question

Quizplus · Accepted Answer

A decrease in government expenditure on goods and services decreases the total demand for goods and services in the economy, leading to a decrease in aggregate demand. When the government spends less, a significant amount of money previously available for spending is withdrawn from the economy, causing a downfall in consumption and investment spending. As a result, businesses and households alike tend to spend less, resulting in less demand in the market.

A Decrease in Government Expenditure on Goods and Services