Answer to Question #111225 in Macroeconomics for Anshika

Question

Italy’s government providing the income support to laid-off workers. How would this step by the government of Italy affect the output in the short run in Italy using IS-LM framework.

Answer 1

supporting the income of laid-off workers is government spending.

Increased government spending is likely to cause a rise in aggregate demand (AD). This can lead to higher growth in the short-term. It can also potentially lead to inflation.

https://www.economicshelp.org/blog/2731/economics/impact-of-increasing-government-spending/