Public Spending and the Money Multiplier

17 de julio de 2009   | Vistas: 35 |  

Robert J. Barro looks at John Maynard Keynes’s theory on public spending and the money multiplier effect. Barro uses long-term US GDP rates to analyze the impact of government spending on the country's economy. According to the Keynesian theory, governments spend public money in order to multiply it, thereby creating even more benefits for society. However, Barro refers to the lack of empirical evidence supporting the current US administration’s assumption that the multiplier effect is 1.5. Barro also classifies government spending into defense and non-defense purchases and compares the two. At the same time, Barro’s research also looks at how changes in taxes affect production and the real per capita GDP. According to the long-term data Barro is working with, big events, like wars, can force a state to increase the country's rate of resource absorption.




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Universidad Francisco Marroquín