Question

Suppose, the Indian Government decides to boost public investments with a defence project of ₹ 40,000 crore. 

Explain the likely impacts of the given situation on the Income, Employment and Output of the economy, assuming all other factors constant. 

Answer 1

1. If the Indian government raises public spending, the economy's output, employment, and income will all rise.
2. One fiscal policy tool the central government uses to affect the amount of money in the economy is public spending. Factor income is the money released into the economy when public spending increases.
3. People will be employed to generate the output as part of the 40,000 crore rupee defence project. Therefore, output income and employment will rise at the same time.