Question

Why does a​ $1 increase in government purchases lead to more than a​ $1 increase in income and​ spending?

Answer 1

If there is $1 increase in the government purchases, this will increase the income and spending by more than $1. This increase is due to the government spending multiplier.

The increase in government spending will lead to increase the aggregate demand and national income of a nation.Therefore, this will increase the induced spending.

That's why one dollar increase in government spending will lead to more than one dollar increase in income and​ spending.