If the government decides to increase expenditure on public transportation, there will be:

Question

BlackTom AI · Accepted Answer

An increase in government expenditure raises aggregate demand because G is a direct component of AD (AD = C + I + G + NX), so higher G increases total planned spending at each price level.

1. Relevant knowledge points and concepts
- Aggregate demand (AD) represents total demand for goods and services in the economy at each overall price level and is given by AD = C + I + G + NX (consumption, investment, government purchases, net exports).
- A change in a component of AD (like G) shifts the entire AD curve; a change in the price level causes movement along the AD curve.
- Shifts to the right represent an increase in AD (more demand at every price); shifts to the left represent a decrease.

2. Step-by-step reasoning
- Government decides to increase expenditure on public transportation.
- This directly raises G, one of the four components of aggregate demand.
- At every possible price level, planned spending is now higher because the government is buying more services/goods.
- Therefore, the aggregate demand curve must move to a new position showing higher demand at each price level: a rightward shift.

3. Intermediate steps / calculations
- Conceptual "calculation": AD_initial = C + I + G_initial + NX. After the policy: AD_new = C + I + (G_initial + ΔG) + NX = AD_initial + ΔG. Since ΔG > 0, AD_new > AD_initial for all price levels.

4. Why the correct answer is correct
- Because government spending is an autonomous demand component, an increase raises total planned spending independent of the price level, producing a rightward shift of AD.

5. Why other options are incorrect
- "A movement along the aggregate-demand curve": This happens only when the price level changes, not when a component of AD changes.
- "No effect on the aggregate-demand curve": Incorrect because raising G increases total demand.
- "A shift of the aggregate-demand curve to the left": This would indicate a decrease in AD, the opposite of what an increase in G does.

6. Conclusion
The correct outcome is a shift of the aggregate-demand curve to the right, which matches the provided answer.

If the government decides to increase expenditure on public transportation, there will be:Single choice

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