Dollar for Dollar Crowding Out in the Textbook Keynesian Cross Model When the Economy is Below Full Employment

19 Pages Posted: 27 Jan 2010

See all articles by Sheldon H. Stein

Sheldon H. Stein

Cleveland State University - Economics

Date Written: January 15, 2010

Abstract

In this paper, it will be demonstrated that a "dollar for dollar" crowding out of national investment caused by increased government spending is not just something that occurs within classical macroeconomic models. The reason for this is that in a closed economy Keynesian cross model with ignores money, national savings, or Y - C - G, is equal to national investment, or I. Such an "equilibrium" does not provide the national savings needed to finance a purely fiscal increase in government spending in a closed economy. Any additional government spending would have to occur at the expense of an already low level of capital spending and thus make the government spending multiplier equal to zero.

JEL Classification: H5, H6

Suggested Citation

Stein, Sheldon H., Dollar for Dollar Crowding Out in the Textbook Keynesian Cross Model When the Economy is Below Full Employment (January 15, 2010). Available at SSRN: https://ssrn.com/abstract=1542891 or http://dx.doi.org/10.2139/ssrn.1542891

Sheldon H. Stein (Contact Author)

Cleveland State University - Economics ( email )

Cleveland, OH 44115
United States
216-687-4537 (Phone)
216-687-9206 (Fax)

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