Changes in government spending affect saving and growth in the long run, and aggregate demand and employment in the short run.

Question

Quizplus · Accepted Answer

Changes in government spending have different effects in the short run and the long run. In the short run, an increase in government spending can boost aggregate demand, leading to higher employment and economic growth. However, in the long run, if the government spends more than it collects in revenue, it may lead to higher levels of debt and interest payments, which can reduce national saving and investment, and slow down economic growth. Therefore, changes in government spending have both short-term and long-term effects on the economy.

Changes in Government Spending Affect Saving and Growth in the Long