Why estimate size of multiplier matter in evaluating effects

Reference no: EM131023004

We saw that in calculating the stimulus package's effect on real GDP, economists in the Obama administration estimated that the government purchases multiplier has a value of 1.57. John F. Cogan, Tobias Cwik, John B. Taylor, and Volker Wieland argue that the value is only 0.4.

a. Briefly explain how the government purchases multiplier can have a value of less than 1.

b. Why does an estimate of the size of the multiplier matter in evaluating the effects of an expansionary fiscal policy?

Reference no: EM131023004

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