Abstract
The neoclassical growth model not only allows us to analyse the effects of technology but also allows us to perform policy analysis. We now begin our analysis of government policies in the neoclassical growth model. We will consider a number of fiscal policy instruments in this chapter and the following chapters. The policy instrument that we consider in this chapter is government spending. Specifically, we analyse the macroeconomic effects of changes in government spending in the neoclassical growth model with elastic labour supply, which is a crucial feature because the expansionary effects of government spending operate through an income effect on labour supply.
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