Question

The U.S. government is in the midst of spending more than $\backslash (1$ billion on seven buildings containing more than $100,000$ square feet of space to be used for the study of infectious diseases. Prior to the government's decision to construct these buildings, a few universities had been planning to build essentially the same facilities using privately obtained funds. After construction on the government buildings began, however, the universities dropped their plans. Evaluate whether the government's $\backslash )1$ billion expenditure is actually likely to push U.S. real GDP above the level it would have reached in the absence of the government's construction spree.

Short answer

To conclude, the government's $\$1$ billion building spending does not necessarily raise real GDP over the level it would have achieved if the government had not gone on a construction binge.

Step-by-step solution

Introduction 

The given is the government's decision to develop these structures, a few colleges had planned to construct roughly the same facilities with privately obtained cash.

The objective is to determine whether the government is likely to increase the real GDP

Explanation

No, the government's one-billion-dollar expenditure has no effect on real GDP. An increase in government spending will be offset by a drop in private spending. This is due to the fact that universities abandoned their construction plans when government construction began.

As a result, aggregate demand and actual GDP stay the same.

Explanation 

As a result of the government's involvement in the activity in order to compete with the private sector, fiscal policy is impacted by direct expenditure.

It's worth noting that the government spending multiplier will be $0$ if all direct expenditures are offset.

Explanation 

To sum up, the government's $\$1$ billion building spending does not necessarily raise real GDP over the level it would have achieved if the government had not gone on a construction binge.