In a standard macroeconomic model, an unexpected increase in national income will automatically cause a proportional increase in the level of government spending.
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Effect of Government Spending on the Aggregate Demand Curve
An economist is building a simple macroeconomic model for a country. A preliminary forecast within the model suggests that national income will unexpectedly decrease by 2% over the next six months due to a downturn in international trade. The government has not announced any new spending plans or budget changes in response to this forecast. Based on the standard assumption used in these models, how should the economist represent government spending (G) for the upcoming period?
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