Topic 1. In 2015, in proposing a $478 billion increase in federal spending on infrastructure, President Obama argued that the spending would increase total employment in the U.S. After reading the chapter and articles related to this topic briefly discuss on:
a, Will increases in federal spending always increase real GDP and employment in the short run?
b. Are there any circumstances in which the federal government would not want to increase its spending even if it results in higher out put and lower unemployment in the short run?
Your answers should consider short vs long run, crowding out and the actual state of the economy.
a. In general increase in federal spending increases real GDP and employment in the short run, but it can not be said to be true at all the times. If the current employment and GDP is already at the potential level, further increase in government spending will only increase the price level and thus inflation in the economy.
b. The federal government would not want to increase its spending, even if it results in increase in real GDP and employment in the short run, if
A. overall tax receipt of the government is falling.
B. productivity of the government spending is falling.
C. the spending would result in deflation.
D. increase in spending would lead to a greater federal budget deficit and thus a rise in the national debt.
Get Answers For Free
Most questions answered within 1 hours.