Private companies fund a considerable amount of scientific and engineering research. So does the government. Although some of this research is conducted by people directly employed by government agencies, the government also helps fund research by providing grants to researchers. Many such grants provide dollar payments directly to researchers to fund all or part of their salaries and those of their assistants. In addition, the government often helps pay for special equipment for various research facilities.

Since 2000, the number of full-time researchers using funds provided by government grants has risen by 9 percent. Total federal outlays for research and development have increased by more than 45 percent. In the absence of government grants, a portion of this growth in research funding would have been provided by the private sector. This helps explain why the government’s share of total national spending on research and development has risen from 25 percent to about 35 percent today.

How might increased government spending on research and development that simply replaces private spending dollar for dollar affect aggregate demand?