How does increased government spending affect economic activity?

How does increased government spending affect economic activity?

• A. It typically reduces economic activities
• B. It has no significant effect on the economy
• C. It can boost economic activity
• D. It only benefits private enterprises

Answer: (C)

Increased government spending can boost economic activity because it injects capital into the economy, which can lead to higher demand for goods and services. When the government invests in infrastructure, education, public services, or social programs, it creates jobs and increases income for workers. This additional income allows consumers to spend more, stimulating demand further. Moreover, government spending can have a multiplier effect on the economy. As the government spends money, it can lead to increased business revenue, which may prompt businesses to hire more employees or make additional investments. This cycle of spending and increased economic activity can contribute to higher overall economic growth, especially during times of economic downturn or recession when private sector demand might be weak. Thus, the correct answer highlights the positive impact that increased government spending can have on the economy, particularly in terms of stimulating growth and boosting overall economic activity.

Increased government spending can boost economic activity because it injects capital into the economy, which can lead to higher demand for goods and services. When the government invests in infrastructure, education, public services, or social programs, it creates jobs and increases income for workers. This additional income allows consumers to spend more, stimulating demand further.

Moreover, government spending can have a multiplier effect on the economy. As the government spends money, it can lead to increased business revenue, which may prompt businesses to hire more employees or make additional investments. This cycle of spending and increased economic activity can contribute to higher overall economic growth, especially during times of economic downturn or recession when private sector demand might be weak.

Thus, the correct answer highlights the positive impact that increased government spending can have on the economy, particularly in terms of stimulating growth and boosting overall economic activity.