Question

How do you expect the possible impacts of high-speed railway construction between Houston and Dallas on the Texas economy? Please choose either the classical model or the Keynesian model to explain your answer.   

Answer 1

Keynesian model is chosen to explain the impact.

High Speed railway construction project is the case of government sponsored spending that is proposed by the Keynesian Model of economics. With the construction of this project, there is a creation of demand of different types of raw materials and input factors of production. It makes firms to produce and provide these input items. It increases the output in the economy of Texas, Further doing so,  these supplier firms hire more workers and people of Texas get more jobs. These people earn income and spend again. It further boosts the economy of Texas. Besides, the construction of the project itself creates many new jobs for the people of Texas. All these positive economic developments cause the Texas economy to flourish and the economy gets a strong boost. It means that government spending via railway construction project makes multiplier effect upon the Texas economy, as suggested by Keynesian model.  Here, the size of multiplier effect depends upon the marginal propensity to consume of the people in the Texas economy.