How can changes in government spending influence aggregate supply?

The correct choice highlights the relationship between government spending and aggregate demand. When the government increases its spending, particularly on goods and services, it directly injects money into the economy. This increase in spending can stimulate demand for products and services, which in turn encourages businesses to increase their output to meet this heightened demand.

While it is important to note that increased government spending is primarily associated with shifts in aggregate demand, it can also have indirect effects on aggregate supply in the long run. For example, if government spending is directed toward infrastructure development, education, or research and development, it can improve the productive capacity of the economy, ultimately enhancing aggregate supply over time. This investment can lead to greater efficiency and productivity within the economy.

In contrast, factors such as decreased government spending or policies that negatively affect production capabilities would not be considered as beneficial for aggregate supply. Understanding the broader economic repercussions of government spending helps in analyzing its influence on both aggregate demand and supply.