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|User Info||Karl, Question About GDP = C + I + G + (x-i); entered at 2012-06-09 00:51:44|
Registered: 2010-05-17 Appalachia
There is also the fact that a sudden slow down in government spending is disruptive. If government spending is cut by $250B, and that accounts for two million jobs, then in the short term there would be a huge hit to GDP. It'd last until increased private investment could pick up the slack: probably one to two years. Long term, it might be beneficial to GDP as private enterprise is generally more efficient in allocating resources but in the short term there would be a recession.|
In our debt-driven economy, however, it would be an immediately hit to the G portion of GDP without any corresponding increase in I. As a matter of fact, I would probably fall also since some portion of G consists of the pension plans and 401k's of government employees and contractors.