Illustrate that an increase in government spending

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Suppose that government spending makes private firms more productive; for example, government spending on roads and bridges lowers the cost of transportation. This means that there will now be two effects of government spending, the first being the effects discussed for this chapter of an increase in G, and the second being similar to the effects of an increase in the nation's capital stock. Show that an increase in government spending can improve consumer welfare.

Reference no: EM1356467

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