APFIVE Government Spending in the Circular Flow Model
During a recession, the government increases spending on public infrastructure. In the context of the circular flow model of a closed economy, what role does this spending play?
A
It has no effect because only exports drive economic growth.
B
It acts as an injection, increasing aggregate demand and stimulating GDP.
C
It acts as a leakage, reducing the flow of income.
D
It immediately decreases household incomes due to increased taxes.
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