Much Ado About Multipliers - article summary

Much Ado About Multipliers - article summary -...

Info icon This preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Much Ado About Multipliers Economists are deeply divided how well or indeed whether the stimulus works The debate hinges on the scale of the “fiscal multiplier” This measure, formalized by a student of Keynes, captures how effectively tax cuts or increases  in government spending stimulate output A multiplier of one means that $1 billion increase in government spending will increase a  country’s GDP by $1 billion The size of the multiplier bound to vary according to economic conditions For an economy operating at full capacity, the fiscal multiplier should be zero Since there are no spare resources, any increase in government demand would just replace  spending elsewhere BUT in a recession, when workers and factories lie idle, a fiscal boost can increase overall  demand, and if the initial stimulus triggers a cascade of expenditure among consumers and 
Image of page 1
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern