Assume that the economy is already in a recession, and both the President and Congress have decided to do something to restore the economy. Both agree that lowering taxes would not be a good idea, but do believe that it is in the best interest of the economy to increase government spending in defense, education & infrastructure.
The President and Congress change the budget accordingly, but after 18 months, GDP only increased by three quarters of the expected amount. What factors might be responsible for this situation?© BrainMass Inc. brainmass.com March 21, 2019, 1:53 pm ad1c9bdddf
Recall that there are four things that affect GDP via the Aggregate demand function. Those are the four components of the national income accounting identity. Y = C + I + G + NX. And there are things that affect GDP via aggregate supply. Anything that affects costs affects aggregate supply.
If "G" increases then with ...
Economic recession & political action are discussed.