Government’s Unique Situation
As you know, if any element of the C + I + G + (Ex - Im) formula increases, then gross domestic product (GDP)—total demand—increases. If the G portion—government spending at all levels—increases, then GDP increases. Similarly, if government spending decreases, then GDP decreases.
When it comes to financial management, four characteristics of the government set it apart from households and businesses (the C
in the formula):
• Government has the power to tax, which gives it greater control over its revenue. Federal, state, and local governments can mandate higher taxes and increase their revenues. Households and businesses have the more difficult task of selling their labor, goods, and services in order to raise ...