ECO231 Southern Union State Fiscal Policy and Stimulus Discussion
Question Description
1. At the insistent urging of President Obama, Congress has enacted massive spending bills totaling over $1 Trillion. This is sold to the public as “economic stimulus”. What is the purpose of this orgy of spending? Explain the macroeconomic rationale for this action by the Federal government, as justified by the economic theory.
2. According to the (Keynesian) theory, does it matter what the money is spent on?
3. How is the above stimulus bill going to be financed? According to the (Keynesian) theory in the textbook, does it matter where the money comes from?
4. Using common sense (and not Keynesian theory), discuss the amount of stimulative effect we can expect, depending on how the “stimulus” is financed: by taxes, by borrowing from the U.S. population, by borrowing from foreigners, or by borrowing from the Fed. What are the long term consequences?

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