Chapter 31

What type of physical capital does government invest in most?

The federal government invests mostly in infrastructure including transportation, community and regional development, natural resources and the environment, as well as education and social services. The government invests more in transportation than in the other areas.

What is the Ricardian equivalence?

The theory that rational private households might shift their saving to offset government saving or borrowing.

How does government invest in human capital?

They can invest time and money to allow employees to gain education, training, and work experience to improve workforce quality

What is meant by crowding-out?

When government borrowing soaks up available financial capital and leaves less for private investment in physical capital, the result is known as crowding out.

What is the connection between government deficits and the interest rate?

A survey of economic studies on the connection between government borrowing and interest rates in the US economy suggests that an increase of 1% in the budget deficit will lead to a rise in interest rates of 0.5-1%. A higher interest rate tends to discourage firms from making physical capital investments.

What has been the results of government spending on human capital?

Although government spending has increased on education, test scores compared to other nations students have barely budged.