What is a likely economic result of increased government spending?

• A. Decrease in aggregate demand
• B. Increase in unemployment rates
• C. Increase in aggregate demand
• D. Decrease in consumer confidence

Answer: (C)

Increased government spending typically leads to an increase in aggregate demand. When the government injects more money into the economy through various programs, infrastructure projects, or public services, it stimulates economic activity. This spending can create jobs, boost income for households, and increase consumption as consumers feel more financially secure.

As government expenditures rise, they directly add to the overall demand for goods and services in the economy. This higher demand can lead to increased production, further employment opportunities, and an overall boost in economic growth, thereby aligning perfectly with the concept of increased aggregate demand.

In contrast, a decrease in aggregate demand would suggest a contraction in economic activity, which is not consistent with the effects of heightened government spending. Similarly, the scenarios involving increased unemployment rates or decreased consumer confidence would not commonly arise as direct results of increased government expenditure, as such spending generally aims to bolster economic conditions.