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13 May, 2015 - 10:20

Government spending is an additional component of aggregate expenditure. The benefit of the multiplier effect can be derived as a one time increase in government spending to deal with a recession. Such was the case of the New Deal under Roosevelt. In the leakage-injection analysis, government spending is an injection and contributes to move the economy to a higher level of equilibrium.

The Tennessee Valley Authority created in the 1930's was a combination of numerous major projects with thousands of new jobs. This new source of income, and thus aggregate expenditure, was a significant impetus for taking the economy out of the great depression.