ment financing is necessary. Once again, though, there could be problems here because of the balanced budget sentiment in the country now and inflationary effects of deficit spending. One promising source of capital which requires much more study is the public utilities. The amount of funds that the public utilities spend on new construction each year is far greater than the amount that is depreciated each year. This is a large source that it may be possible to tap. (See Table II.) The final topic I considered was the macroeconomic effects of financing and construction. The IS-LM model (Table II) shows the disturbances to the economy in terms of GNP and interest rates. Competition of SPS1s for funds in the financial markets will raise interest rates (LM') causing GNP to temporarily fall. Eventually, once the SPS becomes operational and revenues flow, the good market shifts (IS1) causing interest rates to fall and GNP to rise. If funds are externally provided (government) then interest rates will not change much but GNP would rise. This may very well be inflationary though. Another source of inflation occurs in the construction phase. If workers are not shifted from other sectors but rather new jobs are added to the economy then overemployment may occur. This would bid up all wages causing cost rises which would cause price pass-throughs causing a rise in inflationary expectations. This is a mixture of demand-pull and cost-push inflation leading to an inflationary spiral.
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