Government spending boosts economy during economic downturns, new study finds.
The study looked at how government spending affects the economy when interest rates are very low in Japan. They found that when interest rates are near zero, increasing government spending boosts the economy by 1.5 times the amount spent. This effect is smaller when interest rates are not near zero. The researchers suggest that this is not just because the economy is weak. Their model shows that when interest rates are low due to deflation, and government spending is temporary, it can help the economy grow.