CYCLICAL EFFECTS OF GOVERNMENTS EMPLOYMENT AND GOODS PURCHASES

Distinguishing between the goods purchase and employee compensation co mponents of government spending is important. Shocks to government goo ds purchases and shocks to government employment have the opposite eff ects on private output, private employment and private investment More over, with this distinction in place, quantitative analysis reveals th at government spending is no longer a significant driving source of th e U.S. business cycle. On the contrary, the components of government s pending are procyclical in the U.S. data primarily because of their po sitive responses to the output fluctuations generated by technology sh ocks.