More government spending when there is too much money in the country?

Question

Why do they say that government spending must increase as more money is generated by the economy?

Answer 1

Increase in money supply = increase in inflation

which simply put is bad for the economy. Low inflation is a main priority of every government that runs its economy as inflation increases income inequality and increases in the price of goods and services.

If the government does not spend, it will be called a contractionary policy by the government and economic growth will decrease while the level of unemployment will increase.

Answer 2

I don't think they do - at least I never heard it before.

You might be confusing this with:

A. As the economy grows, the government CAN spend more money without doing more damage. (Suppose the government now spends 30% of the total GNP - double the GNP and the government can spend twice as much).

B. The government should increase the money supply - either at a steady rate (check out the section titled "Policy Positions"):

http://en.wikipedia.org/wiki/Milton_Frie...

or in line with productivity growth.

http://en.wikipedia.org/wiki/Monetary_po...

The idea is that inflation is due to having too much money chasing too few goods and that governments are always tempted to spend money they don't have (going into debt) and in the process create more money than is good for the economy.

http://en.wikipedia.org/wiki/Deficit

(This is fiscal policy - as opposed to monetary policy increasing the money supply by reducing interest rates, etc.)