Last week I guest-taught a class for my friend and colleague at GMU Dr. Colin Doran. The course was Introductory Macroeconomics and the lecture was on fiscal policy. The textbook is Paul Krugman and Robin Wells’ popular book Macroeconomics (5th ed). In the chapter on fiscal policy, after explaining its goals and implementation, Krugman & Wells discuss several common objections. They write (Page 386):
In practice, the use of fiscal policy—in particular, the use of expansionary fiscal
policy in the face of a recessionary gap—is often controversial….But for now, let’s quickly summarize the major points of the debate over expansionary fiscal policy, so we can understand when the critiques are justified and when they are not.
There are three main arguments against the use of expansionary fiscal policy.
• Government spending always crowds out private spending
• Government borrowing always crowds out private investment spending
• Government budget deficits…
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