The relationship between public spending and inflation
Order ID |
53563633773 |
Type |
Essay |
Writer Level |
Masters |
Style |
APA |
Sources/References |
4 |
Perfect Number of Pages to Order |
5-10 Pages |
Description/Paper Instructions
The relationship between public spending and inflation: A review of the literature
The relationship between public spending and inflation has been a subject of debate among economists for decades. Some argue that an increase in public spending can lead to inflation, while others argue that it has no significant impact on inflation. In this review, we will examine the existing literature on this topic to better understand the relationship between public spending and inflation.
First, it is important to understand what is meant by public spending. Public spending refers to government expenditures on goods and services, including social welfare programs, infrastructure, defense, and education. The level of public spending can vary depending on a government’s fiscal policies, and it can have significant implications for a country’s economy.
One of the earliest theories on the relationship between public spending and inflation is the Keynesian theory. According to this theory, an increase in public spending can stimulate economic growth and create jobs, but it can also lead to inflation if it outpaces the growth in output. In other words, if the government spends more money than the economy can produce, it will lead to higher prices and inflation. This is because an increase in demand for goods and services, without a corresponding increase in supply, will result in higher prices.
However, some economists argue that the Keynesian theory does not hold true in the long run. They point to the fact that inflation can also be caused by other factors such as changes in the money supply, exchange rates, and external shocks like changes in oil prices. Therefore, they argue that an increase in public spending does not necessarily lead to inflation.
Another theory on the relationship between public spending and inflation is the monetarist theory. According to this theory, inflation is caused by an increase in the money supply. Therefore, an increase in public spending, if financed by printing more money, will lead to inflation. This is because an increase in the money supply will reduce the value of the currency, making goods and services more expensive.
Empirical studies have been conducted to test these theories. One such study by Cagan (1956) found that there was a positive relationship between public spending and inflation in the United States. However, this relationship was weak and was only significant during wartime. Similarly, a study by Bohn (1991) found that there was a positive relationship between public spending and inflation in the United States, but only for periods when the budget deficit was financed by an increase in the money supply. This supports the monetarist theory that inflation is caused by an increase in the money supply.
However, other studies have found that the relationship between public spending and inflation is not as straightforward as the Keynesian or monetarist theories suggest. For example, a study by Aschauer (1985) found that an increase in public spending on infrastructure led to higher economic growth and productivity, but did not lead to inflation. Similarly, a study by Aizenman and Frenkel (1985) found that public spending on social welfare programs did not lead to inflation in Israel.
Overall, the existing literature suggests that the relationship between public spending and inflation is complex and depends on various factors such as the type of public spending, the financing method, and the overall economic conditions of the country. While an increase in public spending can lead to inflation if it outpaces the growth in output or if it is financed by printing more money, it can also have positive effects on economic growth and productivity if it is used to invest in infrastructure or social welfare programs.
In conclusion, the relationship between public spending and inflation is not straightforward and depends on a range of factors. While the Keynesian theory suggests that an increase in public spending can lead to inflation, the monetarist theory suggests that inflation is caused by an increase in the money supply.
The relationship between public spending and inflation
RUBRIC
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Content (worth a maximum of 50% of the total points) |
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30 points out of 50: The essay illustrates a rudimentary understanding of the relevant material by mentioning but not full explaining the relevant content; identifying some of the key concepts/ideas though failing to fully or accurately explain many of them; using terminology, though sometimes inaccurately or inappropriately; and/or incorporating some key claims/points but failing to explain the reasoning behind them or doing so inaccurately. Elements of the required response may also be lacking. |
40 points out of 50: The essay illustrates solid understanding of the relevant material by correctly addressing most of the relevant content; identifying and explaining most of the key concepts/ideas; using correct terminology; explaining the reasoning behind most of the key points/claims; and/or where necessary or useful, substantiating some points with accurate examples. The answer is complete. |
50 points: The essay illustrates exemplary understanding of the relevant material by thoroughly and correctly addressing the relevant content; identifying and explaining all of the key concepts/ideas; using correct terminology explaining the reasoning behind key points/claims and substantiating, as necessary/useful, points with several accurate and illuminating examples. No aspects of the required answer are missing. |
Use of Sources (worth a maximum of 20% of the total points). |
Zero points: Student failed to include citations and/or references. Or the student failed to submit a final paper. |
5 out 20 points: Sources are seldom cited to support statements and/or format of citations are not recognizable as APA 6th Edition format. There are major errors in the formation of the references and citations. And/or there is a major reliance on highly questionable. The Student fails to provide an adequate synthesis of research collected for the paper. |
10 out 20 points: References to scholarly sources are occasionally given; many statements seem unsubstantiated. Frequent errors in APA 6th Edition format, leaving the reader confused about the source of the information. There are significant errors of the formation in the references and citations. And/or there is a significant use of highly questionable sources. |
15 out 20 points: Credible Scholarly sources are used effectively support claims and are, for the most part, clear and fairly represented. APA 6th Edition is used with only a few minor errors. There are minor errors in reference and/or citations. And/or there is some use of questionable sources. |
20 points: Credible scholarly sources are used to give compelling evidence to support claims and are clearly and fairly represented. APA 6th Edition format is used accurately and consistently. The student uses above the maximum required references in the development of the assignment. |
Grammar (worth maximum of 20% of total points) |
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10 points out 20: The paper is often unclear and difficult to follow due to some inappropriate terminology and/or vague language; ideas may be fragmented, wandering and/or repetitive; poor organization; and/or some grammatical, spelling, punctuation errors |
15 points out of 20: The paper is mostly clear as a result of appropriate use of terminology and minimal vagueness; no tangents and no repetition; fairly good organization; almost perfect grammar, spelling, punctuation, and word usage. |
20 points: The paper is clear, concise, and a pleasure to read as a result of appropriate and precise use of terminology; total coherence of thoughts and presentation and logical organization; and the essay is error free. |
Structure of the Paper (worth 10% of total points) |
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7 points out of 10: Research paper presents an above-average use of formatting skills. The paper has slight errors within the paper. This can include small errors or omissions with the cover page, abstract, page number, and headers. There could be also slight formatting issues with the document spacing or the font Additionally the paper might slightly exceed or undershoot the specific number of required written pages for the assignment. |
10 points: Student provides a high-caliber, formatted paper. This includes an APA 6th edition cover page, abstract, page number, headers and is double spaced in 12’ Times Roman Font. Additionally, the paper conforms to the specific number of required written pages and neither goes over or under the specified length of the paper. |
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