what happens when the government spends?

Question

In an economy where the money market adheres to the principles of the classical model but the commodity market displays a substantial amount of Keynesian unemployment with stable prices, what happens when the government increases its expenditure and finances it by selling bonds to the non-banking private sector? the government increases its expenditure and finances it by selling bonds to the banking system?

Answer 1

It's been a while since I took econ, but i would say that government spending helps to revitalize the economy. Financing it by selling bonds it's pretty secure since U.S. bonds are still perceived to be very dependable; a secure investment even by other countries who also buy them...

Answer 2

Nothing. They have money from the working people, in the form of taxes, coming in constantly. That is why the IRS is often referred to as the ETERNAL revenue Service.