This paper examines the effects of fiscal policy within a quantitative general equilibrium model. The authors find that the basic neoclassical model has important dynamic interactions of capital and labor in response to policy disturbances, which alter standard neoclassical predictions about the equilibrium effects of fiscal policy. Their main findings are: (1) there is likely to be a long-run multiplier associated with changes in government purchases; (2) permanent changes in government purchases induce larger effects than temporary changes; (3) the financing decision associated with changes in government purchases is quantitatively much more important than the direct resource cost of changes in government purchases; and (4) public investment policies have dramatic effects on output and private investment. The paper investigates the macroeconomic consequences of permanent shifts in basic government purchases, defined as those that have no effect on private marginal product or marginal utility schedules. It also details the conditions under which a multiplier results from permanent changes in basic government purchases. The paper compares the macroeconomic effects of temporary and permanent changes in government purchases and investigates the macroeconomic implications of alternative methods of public finance for basic government purchases. It also studies the effects of government purchases that have direct implications for private marginal products or marginal utilities. The paper concludes that public investment policies have dramatic effects on output and private investment.This paper examines the effects of fiscal policy within a quantitative general equilibrium model. The authors find that the basic neoclassical model has important dynamic interactions of capital and labor in response to policy disturbances, which alter standard neoclassical predictions about the equilibrium effects of fiscal policy. Their main findings are: (1) there is likely to be a long-run multiplier associated with changes in government purchases; (2) permanent changes in government purchases induce larger effects than temporary changes; (3) the financing decision associated with changes in government purchases is quantitatively much more important than the direct resource cost of changes in government purchases; and (4) public investment policies have dramatic effects on output and private investment. The paper investigates the macroeconomic consequences of permanent shifts in basic government purchases, defined as those that have no effect on private marginal product or marginal utility schedules. It also details the conditions under which a multiplier results from permanent changes in basic government purchases. The paper compares the macroeconomic effects of temporary and permanent changes in government purchases and investigates the macroeconomic implications of alternative methods of public finance for basic government purchases. It also studies the effects of government purchases that have direct implications for private marginal products or marginal utilities. The paper concludes that public investment policies have dramatic effects on output and private investment.