Macro question

by Russ Roberts on January 6, 2009

in Stimulus

Here are three $750 billion stimulus plans. All three are financed by borrowing:

1. Give every American a "tax rebate" of $2500.
2. Hire 10,000,000 Americans and pay them $75,000 to dig a ditch for six months and spend the next six months filling it back in.
3. Hire 10,000,000 Americans and pay them $75,000 to build bridges and sewers and landscape parks and highways for a year.

Do any of these stimulate the economy? If yes, is there a difference between which does a better job at stimulating the economy? You may continue your answer on the back of the page.

Extra credit: Combine 1 and 3. Give every American $1250 and hire 5,000,000 Americans to build bridges etc. Same effects? Different? Why?

Extra extra credit: Would macroeconomists agree on the answers to these questions? Why not? What empirical evidence might be used to make a case for one side or the other?


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