In a situation when there is full employment in the economy and the government raises expenditure without boosting tax collection, prices for goods and services will rise.
What happens when the amount spent by the government rises?
Government spending boosts overall demand, which drives up prices. More output is prompted by increased pricing, in accordance with the law of supply. More jobs are created in order to do this. Demand growth results in reduced unemployment rates and higher output.
What occurs when governments spend excessively?
Overspending by the government results in budget deficits and imbalances. Overspending by the government has drawbacks including higher interest rates, a lack of national savings, and a default risk.
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