Government Spending

Pro/Pro Final

November 20, 2012

Keynesian Methods of Stimulating the Economy

“When the economy is in a downturn with underutilized resources, Keynesians believe the federal government should increase aggregate demand by increasing deficit spending through some combination of more spending and lower taxes.” (Lee 473) Dwight R. Lee identifies the views of Keynesians and recognizes the cause and effect of government spending. Government spending is when the government buys and consumes bonds, goods, services, etc. resulting in high aggregate demand. This is believed to stimulate the economy and open up a large opportunity in the job market. Aggregate demand is the total amount of goods and services demanded during a certain time period. Government spending is argued between Keynesian and non-Keynesian economists as to whether it is actually beneficial to our economy in situations like recessions. Throughout many credible and systemized sources, it is easily seen that government spending is necessary to help and improve the economy.

The fact of the matter is that government spending stabilizes financial markets and helps to prevent future negative situations. Gisle James Natvik provides a vast and informative source of understanding the purpose of Government expenditure. This expansive article not only covers government spending through words, but also shows the scientific equation of private and government consumption. Natvik explains the effect of government spending as, “most economies government purchases constitute a considerable fraction of aggregate demand”. (Natvik 58) The phrase “aggregate demand” is used in macroeconomics meaning, the total demand of a certain good or service. The purpose of using this is to show that government spending does indeed cause public consumption or demand. Thus, slowly flowing money back into the economy, essentially stabilizing it. Guido Cozzi of the University of Durham argues the significance of government spending in this...