Why is government spending an important factor in economic stability?

Question

Why is government spending an important factor in economic stability?

Answer 1

Actually the problem is not simply that the government spends more than it takes in.  The problem that this causes is the real problem.  When the government needs more money to pay for its spending, it can do 3 things to my knowledge:  1.  raise taxes 2.  spend more by printing more money w/ out taxes and 3.  selling bonds and having the debt finances by citizens and other countries.  The more they have to do these 3 things, they less the natural economy is able to coordinate the purchase and allocation of scarce resources.

Answer 2

Government spending is the most easily controlled aspect of aggregate demand.  Thus, when a recession hits, it can be increased to make up for the loss in consumption.  Also, because people will respend the money they get from the government, it can also help with consumption.

Answer 3

In general, the larger the government's deficit is, the less comfortable citizens feel about spending or investing money, so the economy tends to decline. The opposite also applies; that is why the Clinton administration was economically successful; they started to have a budget surplus.