420worksheet16

420worksheet16 - estimates the government spending...

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ECON 420-002 and 004, Fall 2008 Worksheet 16 1. The U.S. government is considering providing a second stimulus to boost the economy. Use the IS-LM model to examine the effects of this on real GDP in the following scenario: (i) Interest rate is held constant (ii) Money supply held constant. a. Which of these will have the larger effect on GDP and why? b. The Fiscal-Policy Multipliers in the Data Resources Incorporated model
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Unformatted text preview: estimates the government spending multiplier to be 1.93 if interest rate is held constant and a multiplier of 0.60 if the money supply is held constant (These multipliers are for the fourth quarter after the policy change is made). If the U.S. government is planning to increase fiscal spending by $300 billion dollars before January 2009, what is the likely effect of this on real GDP under (i) and (ii)?...
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