In 2001, the United States' net debt to the rest of the world jumped to $2.3 trillion, a level double that recorded in 1999. Much of the increase reflects the new borrowing undertaken by the country to finance its mounting current account deficit. A third of the change, however, can be traced to...

The authors use a stylized model of the economy to analyze how permanent and temporary increases in government expenditure--and the timing of taxation used to finance them--affect aggregate output and other variables that describe the economy.