Economics, Econometrics and Finance
7 years ago

Government spending boosts economy by increasing demand for private goods.

RePEc: Research Papers in Economics
A model of the confidence channel of fiscal policy
Bernardo Guimarães, Caio Machado, Marcel Ribeiro

Paper Summary

The model in the article shows that when the government spends more money, it not only boosts demand for private goods but also increases firms' expectations about future production and demand. This means that during times of low economic activity, it is more beneficial for the government to increase spending.

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