A Wall Street Journal article noted that in the first quarter of 2019, Spending on factories, equipment

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A Wall Street Journal article noted that in the first quarter of 2019, “Spending on factories, equipment and other capital goods slowed in the first quarter among a broad cross-section of large, U.S.-listed firms, bolstering investor concerns that a key driver of economic growth is fading.” The article quoted the CEO of Micron Technology as saying that “macroeconomic uncertainty” resulting from the trade war between the United States and China was mainly responsible for the slowdown in spending on capital goods. 

a. Why would spending on capital goods be considered a key driver of economic growth? 

b. In predicting the effect of a slowdown in spending on capital goods on long-run economic growth, do the reasons for the slowdown in spending matter? If so, would the reason cited by the CEO of Micron be relatively good news for the prospects of higher future growth or relatively bad news? Briefly explain.

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Economics

ISBN: 9780135957554

8th Edition

Authors: Glenn Hubbard, Anthony Patrick O Brien

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