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Fiscal Stimulus of Consumption and the Keynesian Black Hole

32 Pages Posted: 19 Feb 2016  

Wilson N. Sy

Investment Analytics

Date Written: February 18, 2016

Abstract

It is shown empirically that, for the US economy, fiscal stimulus has increased total consumption, but has depressed economic growth. Therefore, decades of fiscal stimulus has been a continual depressant on US economic growth and moved the economy closer to the Keynesian singularity defined as the situation where the Keynesian multiplier approaches infinity. At the singularity, an economy has a propensity to consume equal to unity and therefore consumes all its output, leading to a potential collapse into a Keynesian economic black hole. A theory of economic growth is proposed to explain how fiscal stimulus can lead to the Keynesian singularity and the black hole, based on the differences in the structures of aggregate demand between the private and government sectors.

Keywords: Keynesian, macroeconomics, fiscal policy, consumption, aggregate demand

JEL Classification: E12, E20, E62, H30, H50, H62

Suggested Citation

Sy, Wilson N., Fiscal Stimulus of Consumption and the Keynesian Black Hole (February 18, 2016). Available at SSRN: https://ssrn.com/abstract=2734591 or http://dx.doi.org/10.2139/ssrn.2734591

Wilson Sy (Contact Author)

Investment Analytics ( email )

12 Gilchrist Place
Balmain East, NSW 2041
Australia
0424669802 (Phone)

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