One issue with this model is that it assumes the marginal return on every unit of money spent by the government remains constant. It is this fallacy that led China to build highways to ghost cities and America ending up with government cheese. When fiscal policy is involved it tends to be so large compared to its target market that the e…
One issue with this model is that it assumes the marginal return on every unit of money spent by the government remains constant. It is this fallacy that led China to build highways to ghost cities and America ending up with government cheese. When fiscal policy is involved it tends to be so large compared to its target market that the effect of diminishing returns kicks in really quickly (which means the practical m is could be much lower than the theoretical m).
One issue with this model is that it assumes the marginal return on every unit of money spent by the government remains constant. It is this fallacy that led China to build highways to ghost cities and America ending up with government cheese. When fiscal policy is involved it tends to be so large compared to its target market that the effect of diminishing returns kicks in really quickly (which means the practical m is could be much lower than the theoretical m).