Influence of Business and Household Expectations on the Multiplier

Auerbach and Gorodnichenko's (2012) Study on the State-Dependent Fiscal Multiplier

Impact of Economic Conditions on Government Spending

A government plans to increase its spending by a fixed amount to stimulate the economy. Considering only the immediate effects of this spending, in which scenario would this policy likely lead to the largest total increase in national output?

An economist calculates a country's spending multiplier to be 2.5 based on its long-term average marginal propensity to consume. This calculated value can be reliably used to predict the precise impact of a new government spending program, regardless of whether the economy is currently in a deep recession or a period of rapid expansion.

Comparing Multiplier Effects in Different Economic States

Factors Influencing the Spending Multiplier's Magnitude

Match each economic scenario with the most likely relative size of the spending multiplier.

The real-world value of the spending multiplier is dynamic, not fixed. Its effect is generally observed to be greater when an economy has significant unused productive capacity, a situation characteristic of an economic ________.

A government is considering a $100 billion increase in infrastructure spending. Rank the following economic scenarios from the one where this spending increase would likely have the LARGEST total impact on national output to the one where it would have the SMALLEST total impact.

Analyzing Fiscal Stimulus Effectiveness

Evaluating Competing Fiscal Policy Arguments