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Slow GDP Growth

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Details: Assume that the economy is already in a recession, and both the President and Congress have decided to do something to restore the economy. Both agree that lowering taxes would not be a good idea, but do believe that it is in the best interest of the economy to increase government spending in defense, education & infrastructure.

The President and Congress change the budget accordingly, but after 18 months, GDP only increased by three quarters of the expected amount. What factors might be responsible for this situation?

Write a 1-2 pages answering the above questions.

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Solution Summary

This posting discusses the factors responsible for a sluggish GDP growth. It explains the effect of increase in government spending in defense, education & infrastructure.

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Details: Assume that the economy is already in a recession, and both the President and Congress have decided to do something to restore the economy. Both agree that lowering taxes would not be a good idea, but do believe that it is in the best interest of the economy to increase government spending in defense, education & infrastructure.

The President and Congress change the budget accordingly, but after 18 months, GDP only increased by three quarters of the expected amount. What factors might be responsible for this situation?
There are three reasons why the GDP has increased by three ...

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