An increase in government spending can lead to an increase in aggregate demand (AD).Question 22Answera.Trueb.False

Analysis of the Statement

1. Understanding Aggregate Demand (AD):

   • Aggregate Demand refers to the total demand for all goods and services in an economy at a given overall price level and in a given time period.

2. Impact of Government Spending:

   • When a government increases its spending, it directly influences the economy by purchasing goods and services. This increase in spending raises the overall demand in the economy.
   • Additionally, government spending can stimulate further private sector investment and consumption.

3. Economic Theory:

   • According to Keynesian economics, increased government expenditure can lead to higher national income and employment, creating a multiplier effect throughout the economy, which furthers increases in aggregate demand.

Conclusion

The statement "An increase in government spending can lead to an increase in aggregate demand (AD)" is indeed True. The rationale behind this lies in the basic principles of macroeconomic theory which correlate government spending with shifts in aggregate demand, ultimately demonstrating its expansive effects on the economy.

Final Answer

a. True