How does increased government spending lead to a rightward shift in demand?

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July 29, 2022 at 8:34 pm #662117
MDCIMA
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Hi tutors,

In the video: “National income, The circular flow of income, Aggregate supply and demand” part 1

There is a point at: 18:52 in the video stating that increased govt. spending leads to a rightward shift in demand.
Please can you explain what is the connection between increased government spending and demand?

Thanks,
MD.
July 31, 2022 at 12:44 pm #662232
Ken Garrett
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If there were no government spending, let’s say on medicine, then the demand curve will show the relationship between price and quantity demanded by thr public. If the government were suddenly to start spending on medicine, then that simply represents additional demand at a given price. Hence the curve shifts to the right.
July 31, 2022 at 3:18 pm #662244
MDCIMA
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Thank you.

But what is it specifically about government spending that increases demand?
I can why understand the reason behind the other causes of a rightward shift on the same slide at 18:52 in the video but I just don’t understand the government spending part.

Why would there be more demand if the government started to spend money on medicine?

Thanks,
MD
July 31, 2022 at 5:21 pm #662250
Ken Garrett
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It’s jusr like a new consumer being added. The population had reached Price/volume equilibrium, then government comes along and says ‘We also want to buy at that price’, so the volume demanded at a given price increases.
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