Explain what would cause the government purchases function to increase.
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The answer to this will differ depending on whether we are talking about the federal government or state governments.
State and local governments are generally dependent on tax revenues. They are less able to borrow than the federal government. Therefore, their government purchases function will grow when the economy is strong. At such times, there will be more tax revenues and the state and local governments can buy more things.
By contrast, the federal government’s purchases function tends to increase when the economy is in hard times. At such times, people want the government to spend more in order to stimulate the economy. When the government responds to such demands, its purchases function can increase. There are also other factors that can cause government spending to increase. However, these tend to be less predictable. For example, the 9/11 terrorist attacks and the wars that followed greatly increased government purchasing.
Thus, different levels of government will have different purchases functions. Some increases in these functions will be fairly predictable while others will not be.
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