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Generally the government is very good at wasting money and resources so less spending, generally speaking, by the government helps the economy as those resources are allocated in more efficient areas of the economy.
This is a topic taught in all basic and advanced economic classes. It comes from John Maynard Keynes, the British economist. He created Macro economic theory we have today. Basically pump priming by the government can help stimulate the economy. Pump priming is governmental deficit spending. That concept has been the basics of all stimulus spending ideas. It can come from tax refunds or direct expenditures by the government, but in either case it is borrowing that does it.
Milton Freedman, the champion of the Monetarists School of Economics, basically proved that it was monetary theory, changes in the money supply, that was the only way to affect the economy. Pump priming was false. They used Keynesian theory to prove this.
So it really has to do with which school of economic theory you believe in to answer this. If it is Keynesian, then yes it will cause an affect, if Monetarist, then no it won't. You choose
Most economic models (emphasis on models, not necessarily the real world) suggest that less government spending will lower GDP (because Gov't spending is a component of GDP) and be deflationary (cause deflation) in the short run. In the real world there are many many arguments made to every possible effect that changes in government spending have on the economy. There are many factors such as what kind of government spending is cut (defense? health care? entitlements? federal jobs?), if it is planned (versus sudden), and how large the cuts are.
What else can I help you with?
Which action has an expansionary effect on the economy?
Increasing government spending
The response of businesses and individuals to fiscal policy changes is related to which of these?
the amount of funds government is spending
What is the crowding-out affect?
The crowding-out effect refers to a situation in which increased government spending leads to a reduction in private sector spending and investment. When the government borrows money to finance its expenditures, it can raise interest rates, making it more expensive for businesses and individuals to borrow. As a result, private investment may decline, offsetting the intended stimulative effects of government spending. This phenomenon highlights the complex interactions between public and private sectors in an economy.
When a decrease in one or more components of private spending completely offsets the increase in government spending there is?
When a decrease in one or more components of private spending completely offsets the increase in government spending, it results in a scenario known as "crowding out." In this situation, the net effect on overall demand and economic activity is neutral, as the increase in government expenditure is counterbalanced by the decline in private spending. Consequently, the intended stimulative effect of government spending may not materialize, leading to no significant change in overall economic output.
How does government spending and taxation effect the economy s production an d employment?
Government spending and taxation significantly influence economic production and employment by altering aggregate demand. Increased government spending can stimulate economic activity by funding infrastructure projects, public services, and social programs, leading to job creation and higher production levels. Conversely, higher taxes can reduce disposable income for consumers and businesses, potentially dampening spending and investment, which may negatively impact employment and overall economic growth. The balance between these two can determine the health of the economy.
Which action has an expansionary effect on the economy?
Increasing government spending
The response of businesses and individuals to fiscal policy changes is related to which of these?
the amount of funds government is spending
How does government spending contribute to the circular flow of US economy?
It supports businesses by purchasing goods and services.
What is themultiplier effect?
The multiplier effect refers to the phenomenon where an initial injection of spending into the economy leads to a larger increase in overall economic activity. This occurs as the initial spending stimulates additional rounds of spending as income generated from the initial spending is re-spent by others. The multiplier effect helps magnify the impact of government spending or investment on the economy.
How may government lessen the problem of unemployment?
the government can use its powers to increase levels of spending by consumers, businesses, and the government itself and by lowering taxes or giving tax incentives
Why the government spending multiplier is different form the tax multiplier?
The government spending multiplier is different form the tax multiplier from the top of my head is because the government spending total effect ripples off. That is if government spending increase then the total income increases. When total income increase, consumption increases, when consumption increases total income increases further (as consumption is a factor of total income), and this pattern is carried forward. This is the the multiplier effect, such that an increase in government spending's final impact on income is much bigger than its initial increase. The tax multiplier on the other hand, has a much smaller effect than government spending. This is because tax is only a portion of the consumer income. That is, if there is a tax cut, consumers only save a fractional amount (specifically 1-MPC) of a tax cut. As a result of the smaller boost in spending form ma tax cut, the ripples/multiplier effect of a tax cut is much less than an increase in government spending.
Does German government control its businesses?
The German government controls rules and regulations that have an effect on businesses in Germany. For the most part, Germany has a thriving private sector that is affected by government regulations as with any country.
What effect did the sanctity of contracts have on the government's power?
it limited the power of states to regulate businesses
What effect did the sanctity of contracts have on state government' power?
it limited the power of states to regulate businesses
What effect did the sanctity of contracts have on state government power?
it limited the power of states to regulate businesses
What effect did the sanctity of contracts have on the state government power?
it limited the power of states to regulate businesses
What effect did the sanctity of contract have on state government's power?
it limited the power of states to regulate businesses
