Abstract: This paper analyzed the impact of government spending expansion on output and consumption by using the New Keynesian dynamic stochastic general equilibrium model and numerical simulation analysis. The results showed that the expansion of government spending not only would increase output, but also could crowd out private consumption. Meanwhile, the research proved that the effects of government spending within low consumption habit preference band were better than the effects within high consumption habit preference band. Therefore, reducing the ratio of government spending to GDP and improving the government spending structure are important measures to achieve the economy’s balanced development and to promote the increase in household consumption for our country.
Keywords: Economic Growth, Government Spending, Consumption Habit Preference, DSGE Model
source:Finance & Trade Economics ,No8,2013