OES Government spending displace a near equal amount of private spending? This notion, popularly known as the "crowding-out" effect of Government expenditures, has recently gained widespread attention at two levels. Fii-st, at the policy level, public officials have expressed concern, that massive current and projected Federal deficits will have a deleterious effect on private capital expenditures for some time to come. Second, at the academic level, "crowding out" is at least one of the issues which helps to distinguish between followers of the t\vo major macroeconomic schools of thought Keynesians and monetarists. This article focuses on "crowding out" from more of an academic than a practical policy point of view. Policy implications can he drawn from this discussion, but, for the most part, the abstract economic models used in academic circles are not easily adaptable to observable phenomena. Yet the origins of the recent crowding-out controversy at the academic level are traceable to certain empirical results based on U.S. experience. New research has been conducted in this area and some old arguments have been revived.
Fiscal policy-I'ede,'al Governum en!. spending and taxing programs was given time dominant. role in economic stabilization efforts during the decade of tire 1960's. The income tax cut of 1964 was designed to accelerate time movement toward full employment after about three yea's of what was considered by some a rather slow rate of economic expansion following the recession of 1960-61. The income tax surcharge and a rednction in the rate of increase in Government spending we're adopted in 1968 to curb the inflation of the last half of the 1960's. The theoretical rationale frequently given by stabilization officials for such reliance on fiscal actions was the simple Keynesian multiplier analysis found in a large number of economic textbooks. The simple form of the Inultiplier process holds that an increase in Government expenditures or a decrease in the rate of taxation induces repeated rounds of spending by consumers and business firms, resulting in a multiple expansion of total spending. A multiple reduction of total spending is said to result from fiscal changes opposite those just mentioned. This analysis gives little 'recognition to the in fluence on total spending of financing a deficit, am' disposing of a surplus, by altering the amount of Coyern'ment borrowing from the general public or the rate of monetary expansion. The extent to which this analysis guided the recommendations of stabilization authorities during the 1960's is indicated by an examination of the Arcnuar, REPoRTs of the President's Council of Economic Advisers (CEA). The multiplier process just mentioned played an important role in shaping the CEA's view of economic stabilization and was spelled out several times in the ANNUAL REPORTS.
The internet makes it easier for buyers to purchase goods from distant sellers. However, the inability of the buyer to examine the merchandise results in asymmetry of information. This paper develops a the oretical model to analyze the relationship between quality and price in a setting of asymmetrical infor mation. In the spirit of Akerlof (1970), the model predicts that higher quality goods are less likely to be sold in the market. Since buyers have difficulty distinguishing quality, sellers would have to accept lower prices for their highest quality items. The model is tested using data from internet coin auctions.The results show that coins that are claimed to be of higher quality are less likely to sell and when they do sell do so at lower prices relative to their market value.
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