How does government spending effect businesses?

Answer 1

Generally the government is very good at wasting money and resources so less spending, generally speaking, by the government helps the economy as those resources are allocated in more efficient areas of the economy.

More on this topic:

This is a topic taught in all basic and advanced economic classes. It comes from John Maynard Keynes, the British economist. He created Macro economic theory we have today. Basically pump priming by the government can help stimulate the economy. Pump priming is governmental deficit spending. That concept has been the basics of all stimulus spending ideas. It can come from tax refunds or direct expenditures by the government, but in either case it is borrowing that does it.

Milton Freedman, the champion of the Monetarists School of Economics, basically proved that it was monetary theory, changes in the money supply, that was the only way to affect the economy. Pump priming was false. They used Keynesian theory to prove this.

So it really has to do with which school of economic theory you believe in to answer this. If it is Keynesian, then yes it will cause an affect, if Monetarist, then no it won't. You choose

Most economic models (emphasis on models, not necessarily the real world) suggest that less government spending will lower GDP (because Gov't spending is a component of GDP) and be deflationary (cause deflation) in the short run. In the real world there are many many arguments made to every possible effect that changes in government spending have on the economy. There are many factors such as what kind of government spending is cut (defense? health care? entitlements? federal jobs?), if it is planned (versus sudden), and how large the cuts are.

Answer 2

Puchases, Taxes, and Subsides

Answer 3

AIDS