Government spending boosts aggregate demand

Steps:

• Increased government provision of education raises government spending (G).
• Aggregate demand (AD) equals consumption + investment + G + net exports.
• Higher G directly increases total spending in the economy.
• This shifts the AD curve rightward.

Why B is correct:

• Building more schools is direct government expenditure on capital goods, increasing the G component of AD per the AD formula.

Why the others are wrong:

• A: Increases aggregate supply by enhancing productivity, shifting AS right.
• C: Raising taxes reduces disposable income, decreasing consumption and shifting AD left.
• D: Higher skills improve long-run productivity, shifting AS right, not AD.

Final answer: B