Question

If the British government decides to increase government spending on public healthcare services, how will it impact the British economy by shifting the appropriate curve(s)?

a. It shifts the aggregate demand (AD) curve to the right.
b. It shifts the aggregate supply (AS) curve to the right.
c. It shifts both the AD and AS curves to the right.
d. It has no effect on either curve.

Answer 1

Increasing government spending on public healthcare services will shift the aggregate demand (AD) curve to the right, leading to an increase in output and price levels in the British economy.

Step-by-step explanation:

When the British government decides to increase government spending on public healthcare services, it will shift the aggregate demand (AD) curve to the right. This is because government spending increases the demand for goods and services in the economy.

By increasing government spending on healthcare, more money will be flowing into the economy, causing an increase in consumer spending and investment. This leads to an increase in aggregate demand.

As a result, the British economy will experience an increase in output and price levels. However, it's important to note that if real GDP is already greater than potential GDP, the increase in government spending may lead to inflation.