by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is Public Investment in Human Capital? In most countries, the government plays a large role in society’s investment in human capital through the education system. A highly educated and skilled workforce contributes to a higher rate of economic growth. For...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is the Effect of Government Investment in Physical Capital? Government can invest in physical capital directly: roads and bridges; water supply and sewers; seaports and airports; schools and hospitals; plants that generate electricity, like hydroelectric dams or...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How Does Government Borrowing Affect Interest Rates in Financial Markets? Assume that government borrowing of substantial amounts will have an effect on the quantity of private investment. How will this affect interest rates in financial markets? In the financial...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is Crowding Out of Physical Capital Investment? A larger budget deficit will increase demand for financial capital. If private saving and the trade balance remain the same, then less financial capital will be available for private investment in physical capital....
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How does Fiscal Policy Affect Investment and Economic Growth? The underpinnings of economic growth are investments in physical capital, human capital, and technology, all set in an economic environment where firms and individuals can react to the incentives provided...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How does Government Borrowing Affect Private Savings? A change in government budgets may impact private saving. Imagine that people watch government budgets and adjust their savings accordingly. For example, whenever the government runs a budget deficit, people might...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How can Fiscal Policy Affect Trade Imbalances? If a nation is experiencing the inflow of foreign investment capital associated with a trade deficit because foreign investors are making long term direct investments in firms, there may be no substantial reason for...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What are the risks of chronic large deficits in the United States? If a government runs large budget deficits for a sustained period of time, what can go wrong? According to a recent Brookings Institution report, a key risk of a large budget deficit is that government...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How do Exchange Rates Affect Budget and Trade Deficits? Exchange rates can also help to explain why budget deficits are linked to trade deficits. International financial investors, as a group, will demand more U.S. dollars on foreign exchange markets to purchase the...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How does Fiscal Policy Affects Trade Balances? Government budget balances can affect the trade balance. A net inflow of foreign financial investment always accompanies a trade deficit, while a net outflow of financial investment always accompanies a trade surplus. One...
