What is the effect of increased government expenditure?

Increased government expenditure can stimulate economic growth by boosting demand in the economy. When the government invests in various sectors, such as infrastructure, education, or healthcare, it injects money directly into the economy. This spending leads to the creation of jobs and income for individuals, who then have more purchasing power. As people and businesses spend this income, it generates further demand for goods and services, which can lead to increased production and higher levels of economic activity. This cycle can stimulate investment from the private sector as businesses respond to rising demand.

In addition, government spending can be particularly impactful during periods of economic downturn. By increasing expenditure, the government can help offset reductions in private sector spending, thus stabilizing the economy and promoting recovery. Overall, when utilized effectively, increased government expenditure is a powerful tool for driving economic growth and improving overall economic performance.