Lecture 13 Slides After - Economics 134 Spring 2012...

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L ECTURE 13 Does Fiscal Policy Matter? February 28, 2012 Economics 134 Christina Romer Spring 2012 David Romer
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Announcements Please hand in Problem Set 2. Upcoming professor office hours (683 Evans): Thursday, March 1, 4:00-5:00. Monday, March 5, 2:00-3:00.
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I. T HE E FFECTS OF F ISCAL P OLICY IN THE IS-MP-IA M ODEL
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The Short-Run Effects of a Tax Cut in the IS-MP Model Y r MP 0 IS 0 r 0 Y 0 Y IS 1 r 1 Y 1
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The Effects of a Tax Cut over Time Y π AD 1 Y 1 Y LR (=Y) IA LR π LR π 0 , π 1 IA 0 ,IA 1
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II. H ALL S E VIDENCE
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Hall’s Regression where Y is real GDP and G is real government military purchases (and the data are annual). Notice the resemblance to the St. Louis equation: ∆ ln Y t = a + b ∆ ln M t + e t .
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The effects of an increase in government purchases: With the nominal federal funds rate held constant. With no changes in tax policy. With the increase in G fairly short-lived.
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Lecture 13 Slides After - Economics 134 Spring 2012...

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