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ERIC Number: EJ796078
Record Type: Journal
Publication Date: 2008
Pages: 21
Abstractor: Author
ISSN: ISSN-0022-0485
Rethinking the Relation between Government Spending and Economic Growth: A Composition Approach to Fiscal Policy Instruction for Principles Students
Goldsmith, Arthur H.
Journal of Economic Education, v39 n2 p153-173 Spr 2008
Standard introductory textbook authors assert that an increase in government spending expands aggregate demand in the short run but also raises the interest rate and, thus, crowds out private investment in the long run. Because the decrease in investment results in a smaller capital stock, potential output or production capacity decreases. The author challenges the standard assertion by dividing government spending into two components: public consumption and public investment. The short-run effects of an increase in government spending are the same for both components but the long-run effects are dramatically different. The author demonstrates the importance of the composition of public spending to long-run economic performance, using the conventional graphs found in the leading principles of economics textbooks. Appended are: (1) Influence of an Increase in Government Spending on Public Capital Stock, Private Capital Stock, and Long-Run Aggregate Supply, under Alternative Assumptions about the Composition of the Expansion in Government Expenditures; and (2) The Composition of Government Spending: Affect on National Savings and the Composition of National Investment--An Algebraic Approach. (Contains 1 table and 4 figures.)
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Publication Type: Information Analyses; Journal Articles
Education Level: Higher Education
Audience: N/A
Language: English
Sponsor: N/A
Authoring Institution: N/A