Macroeconomic Essay Example | Topics and Well Written Essays - 500 words

Macroeconomic - Essay Example The shift of scarce resources from the private to the public sector would result in a budget deficit because the government would have to increase the interest rates in order to capture the attention of the population to buy the debt. An increase in the government spending in particular areas can also be an instrumental way of promoting technological innovation, the skills of the workforce and the social infrastructure. For instance an increase in government spending on transport infrastructure will not only have a cumulative effect on the aggregate demand but will also promote productivity and competitiveness (Riley). Likewise, if the government spends more on education, it would have direct effects on the population, producing more educated individuals and a skilled workforce. An increase in the spending of the government would have a direct impact on the aggregate demand. Increased government spending would cause an increase in the aggregate demand, which would in turn have an imp act on the entire economy. The increased AD would culminate in the rise in the output as well as the prices. Moreover over a long period of time, the increased government expenditure causes a fiscal policy multiplier, characteristic of increased consumer spending (Mankiw 484).