Give a brief description in words of what happens in the short run and long run in each scenario.

Question

1.government spending grows substantially

Answer 1

In the short run, when government spending grows substantially, it leads to increased demand and economic activity. This stimulates economic growth as more money is injected into the economy, creating jobs and boosting consumer spending. However, in the long run, there may be concerns about the sustainability of the increased government spending. It could lead to higher fiscal deficits and debt levels, which may result in higher taxes or reduced public spending in the future. Additionally, if the government spending is not targeted effectively or is accompanied by inefficient bureaucracy, it may lead to wasteful use of resources and a less productive economy. Therefore, while government spending in the short run has the potential to stimulate economic growth, it is important to carefully manage and evaluate its long-term impact.