Economics » Impacts of Government Borrowing » Fiscal Policy, Investment, and Economic Growth

Summary of Fiscal Policy, Investment, and Economic Growth

Summary of Fiscal Policy, Investment, and Economic Growth

Investment in physical capital, human capital, and new technology is essential for long-term economic growth, as summarized in the table below. In a market-oriented economy, private firms will undertake most of the investment in physical capital, and fiscal policy should seek to avoid a long series of outsized budget deficits that might crowd out such investment. The effects of many growth-oriented policies will be seen very gradually over time, as students are better educated, physical capital investments are made, and new technologies are invented and implemented.

Investment Role of Public and Private Sector in a Market Economy

 Physical CapitalHuman CapitalNew Technology
Private SectorNew investment in property and equipmentOn-the-job trainingResearch and development
Public SectorPublic infrastructurePublic educationJob trainingResearch and development encouraged through private sector incentives and direct spending.

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