US government purchases 20 new F-117A stealth fighters what happens to the aggregrate demand and why?
When the US government purchases 20 new F-117A stealth fighters, it can have an impact on the aggregate demand in the economy. To understand why, we need to consider the components of aggregate demand.
Aggregate demand (AD) is a measurement of the total amount of goods and services that households, businesses, the government, and foreign entities are willing and able to purchase at a given price level. It consists of four components: consumption (C), investment (I), government spending (G), and net exports (NX).
In this scenario, the purchase of F-117A stealth fighters by the US government falls under government spending (G). By increasing government spending, the aggregate demand is directly affected.
The purchase of 20 new F-117A stealth fighters will increase government spending, which, in turn, leads to an increase in aggregate demand. This is because government spending is a significant component of aggregate demand, and any increase in government spending tends to stimulate economic activity.
When the government spends money on new fighter jets, it creates demand for goods and services across various industries involved in the production, supply chain, and maintenance of these aircraft. For example, it may lead to increased demand for raw materials, labor, technological equipment, and other inputs required for aircraft manufacturing.
This increased demand ripples through the economy, potentially leading to increased production, job creation, and higher income levels. As a result, consumers, particularly those employed by industries affected by the government spending, may have higher disposable income, leading to increased consumption expenditure (C).
Therefore, when the US government purchases 20 new F-117A stealth fighters, it is likely to positively impact aggregate demand by increasing government spending and indirectly stimulating other components of aggregate demand, ultimately contributing to economic growth.