Does government spending help in a time of economic crisis?
This question is a very heated debate amongst global economists, and it is not an easily answered question, for there are benefits and detriments to government spending during a time of economic crisis. The situation will depend largely on the position the country is in.
Firstly, the benefits of government spending, as believed by Keynesian economists, are twofold.
1) Economists who believe that government spending is beneficial to, and can overcome an economic crisis believe that by spending money on social programs will create new jobs, hence fueling and stimulating the economy. This is done by
2) increasing the amount of consumer consumption. In a time of economic crisis, consumers tend to be concerned and wary about buying new high end products, such as automobiles and homes. By stimulating the economy by creating social programs (hence creating jobs), consumers are more likely to spend their money, therefore adding a greater amount of capital into the national economy.
These beliefs are under the auspice that government spending is in the form of government investments, such as infrastructure investments and the creation of social programs, stimulating job creation.
However, the negatives to government spending in a time of economic crisis are equally as impressive. Many classical economists who oppose government believe that if the government increases the average spending, the resources will be placed outside the power of the private sector. These classical economists believe that the private sector is productive for stimulating the economy while the public sector (the government) is unproductive and ultimately counterproductive for the stimulation of the economy. These same economists theorize that this kind of additional government spending was the fundamental cause of the Great Depression.
There is no clear answer to this heated debate. While some theorize that government spending will stimulate the economy by creating new jobs through social programs and other government investments, others believe that this kind of spending will actually cause nations to fall deeper into an economic crisis.
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