How does the total spending in the economy affect gross domestic product?
A new study found that a rise in total spending will cause an increase in GDP. The study shows that if government, business, and consumer spending all increase by one percent, then GDP will also grow by one percent. If you want to know more about this economic phenomenon, read on for some of the details, a one percent rise in total spending will always lead to a one percent increase in GDP, but an increase in only one of the sectors (government or business) may not have that effect.
The study found that government spending is more effective at stimulating economic growth than private sector investments. This means that if both government and business spend grow by one per cent, we can expect two per cent higher levels of GDP as opposed to just a single percentage point gain from increases in private sector investment alone.* This blog post has shown you how total spending impacts GDP! If you want to find out more about this process, be sure to consult our blog regularly for updates on economics and finance topics.