The Standard Analysis of the Relationship Between Aggregate Demand and Government Spending and Their Impact on Money Supply in the Iraqi Economy for the Period 2004-2020

Abstract

The aim of the current research is to investigate the impact of increasing government spending upon aggregate demand and upon the trends of monetary policy in terms of motivating its tools, especially the money supply to meet the demand that the increasing government spending creates. Therefore, in the current research, monetary policy trends represented by money supply management in the narrow sense M1 were investigated and explained, and the extent to which they were impacted by the whole changes in the country on the one hand, and changes in government spending and aggregate demand on the other hand. The research also studied how monetary policy finances the aggregate demand created by government spending during the study period. It was concluded that changes in government spending have a clear and obvious impact on aggregate demand and its components. This is indicated by the compound growth rates of both government spending and aggregate demand during the study period. Aggregate demand is being financed by monetary policy. Therefore, it is recommended to work on studying the changes in government spending trends and the extent of their impact on the total aggregate demand and the mechanism of its creation. This is in order to restrict its excessive increase in a way that generates negative effects in the economy. The most important and obvious one is the inflationary pressure created by excessive supply of money and its components in the economy.