A Quiz On National Accounts

Recently CNBC asked Paul Krugman to argue against government spending which provoked Krugman to write a blog post Zombies On CNBC.

Krugman is asked – how high can government expenditure go – 100%?

Okay two theoretical questions which are purely theoretical – nothing much to do with the discussion above.

  1. Can government expenditure be greater than 100% of gdp?
  2. Economists use the phrase net investment to describe investment net of consumption of fixed capital (“depreciation”). This can go negative if the consumption of fixed capital is higher than gross investment. This happened in the United States in 2009 – for example because of the deflationary environment. The System of National Accounts uses the phrase “gross fixed capital formation” and in quarterly gdp news release you see this phrase being used than investment. Can this go negative for an economy as a whole?

The fact that I have asked the two questions means the answer is likely yes.

So how?

Comments welcome – although I do not publish them.

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