Discuss how one of the five components of GDP has been affec

Discuss how one of the five components of GDP has been affected by a recent change in an associated non-income determinant of aggregate demand. Be sure you discuss whether the change increased or decreased GDP.

Solution

The change could be attributed to the change in government spending. An increase in govt. spending can be divided into two parts - spending on \"short-term consumption goods\" or spending on \"long-term consumption goods(education, health etc.). Nowadays, the govt. is spending more on short-term consumption goods like which has a negative effect on GDP, because there is lack of any economic activity. Whereas, govt. expenditure on long-term consumption goods like health and education could lead to better economic productivity and thus higher GDP.