I’ve looked online but I can’t seem to find a clear answer. Thanks
In: Economics
The general idea is that aggregate demand is comprised of _all_ of the entities buying goods. That includes individual consumers, businesses, foreign firms and governments. If any of those groups starts buying more, then aggregate (i.e. total) demand goes up, so increasing in spending from any of them can increase aggregate demand.
The US Government is somewhat special in this regard, though, as it basically has access to unlimited funds over the short term. If the economy is flagging due to low demand, it can take on debt with incredible ease and spend that money in the economy buying goods and services. The firms that sell goods to the government then take that money and buy goods and services of their own, so every $1 spend by the government could have a 3-6x effect on demand. Then, once the economy is good again, spending can be reduced, taxes increased and the debt paid back.
Of course, that is a very Keynesian opinion. Ask a Chicago-school economist and they will tell you that government spending has zero effect on aggregate demand…
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