Rishabh Balamitran

The Effect of Government spending on GDP growth, interest rates, inflation, unemployment

Started June 6, 2022

Abstract or project description

Government spending is an important and complex part of any economy, and impacts on (i) the GDP available to the private sector for consumption and saving/investment via taxation, (ii) credit markets and the interest rate of borrowing via the sales of government bonds in credit markets, (iii) price level and rate of inflation via issuance of government currency and monetary policy, (iv) technological efficiency of capital and labor via investment into infrastructure and education, (v) labor markets and unemployment rate via government employment programs and government demand for labor. The goal of this project is to extend the workhorse Solow model of growth to incorporate government spending and various macroeconomic markets (e.g., money, credit, labor) in order to characterize the effects of government spending (and deficit, if financed through borrowing) on key economic variables listed above.