On Resource Allocation and National Income:

Unlike tax finance, there is little effect of public borrowing on resource allocation or composition of national production. But, when investment level is reduced, it causes decrease in the relative output of capital goods as against the total output in periods of full employment. On the contrary, the capital goods on which the government expenditure is incurred finds greater incentives for their accelerated production and, thus, there is also a rise in national income. The consequent increase in national income will not only be of high level in proportion to the enlarged investment but also will be a multiple of the increment of the investment due to multiplier effect, and thereby create larger employment prospects.