  The purpose of this paper is to provide a micro-economic foundation for an
argument that the direct employment by the government is more desirable than
the government purchase of private goods to eliminate unemployment. A general
equilibrium model with monopolistic competition is devised, and the effects of
policies (government purchase, tax rate operation, and government employment)
on macroeconomic variables (consumption, price, and profit) are investigated.
It is shown that 1) the government purchase is inflationary in the sense that
additional effective demand by the government not only increases private
employment but also raises prices; 2) the government employment can achieve
full employment without causing a rise in prices.
