Saturday, May 23, 2009
Economics and Stimulus
The definition of economics is how to satisfy unlimited wants with limited resources. This definition begs the question, "How can government spending increase GDP without crowding out private investment?" Economic efficiency is obtained when the tradeoff of one more unit of Good X results in the cost of some Good Y. So if the market is efficiently employing resources, then there's an opportunity cost or reallocation of resources such as when government spends money. Perhaps the compositon of GDP changes and the benefits are transferred to different groups, but the net benefits don't change.