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Influence of Business and Household Expectations on the Multiplier
The magnitude of the fiscal multiplier is significantly affected by the expectations of firms and households. Economic agents often anticipate future policy actions, meaning their behavior is shaped not just by current policies but also by their predictions of what the government will do next.
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Introduction to Macroeconomics Course
Ch.5 Macroeconomic policy: Inflation and unemployment - The Economy 2.0 Macroeconomics @ CORE Econ
The Economy 2.0 Macroeconomics @ CORE Econ
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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
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Crowding In of Private Spending
Impact of Expectations on Fiscal Stimulus
The Role of Credibility in Fiscal Policy Announcements
A government announces a one-time tax rebate for all households to stimulate the economy. Simultaneously, credible government sources signal that taxes will need to be raised significantly in the following year to address the budget deficit caused by the rebate. How will this combination of actions most likely influence the size of the fiscal multiplier associated with the tax rebate?
Expectations and Fiscal Policy Effectiveness
If households and firms anticipate that a current government spending increase will be followed by future tax hikes to balance the budget, the immediate effect of the spending multiplier will likely be larger than if no future tax hikes were expected.