The document analyzes the potential job creation effects of a proposed $775 billion American Recovery and Reinvestment Plan. Key findings include:
- The plan is expected to create between 3-4 million jobs by the end of 2010, meeting the President-Elect's goal of saving or creating at least 3 million jobs.
- Spending on infrastructure, education, health and energy will create the most jobs but also be backloaded in 2010-2011. Tax cuts and state fiscal relief can provide quicker stimulus.
- Job creation will occur across all sectors but disproportionately in hard hit construction, manufacturing, retail and leisure/hospitality industries.
- Over 90% of the jobs created will be in the
H1 Econs Macroeconomic problems and management Essay QuestionJohn Jon
This is an A level H1 econs essay question(economic growth and unemployment) taken from a good junior college's tutorial. The solution was compiled by me. Enjoy!
This document provides an introduction to macroeconomics, including its key topics and goals. It discusses that macroeconomics studies aggregate economic measures of an economy, compared to microeconomics which focuses on individual agents. The main macroeconomic goals covered are low unemployment, price stability, and economic growth. These goals can sometimes complement each other, such as low unemployment and high growth, but can also conflict, such as low unemployment and low inflation. It also outlines some of the key principles of economics, including scarcity, rational self-interest, opportunity costs, and that decisions are made at the margin.
1. This chapter discusses fiscal policy as a tool for stabilizing the economy through manipulating government spending and taxes.
2. It explores discretionary and automatic fiscal adjustments using the AD-AS model and covers problems like recognition lags that complicate fiscal policy effectiveness.
3. Evaluating fiscal policy involves examining standardized budgets that adjust for cyclical factors to determine if policy is expansionary or contractionary.
An introduction of Japan’s "Abenomics"--the economic policies advocated by the Prime Minister of Japan, Shinzo Abe, since December 2012, based upon “three arrows” of monetary policies, fiscal policies and structural reforms. It summarises the policies conducted since it started and the current results.
Government Expenditure and Economic Growth Nexus: Empirical Evidence from Nig...iosrjce
This study has examined the impact of public expenditure on economic growth in Nigeria using time
series data for the period 1970-2012. Secondary data were sourced from the CBN, NBS, journals, text books
etc. The adopted model was fitted with three variables: real GDP, capital and recurrent expenditure. The tools
of analysis were the ADF unit root test and ordinary least square multiple regression accompanied by pairwise
Granger causality test. The major objective of this study is to analyse the impact as well as direction of
causality between the fiscal variables and economic growth. All the variables included in the model are
stationary at level. Empirical findings from the study show that there is positive and insignificant relationship
between capital expenditure and economic growth while recurrent expenditure had a significant positive impact
on economic growth. Also, Granger causality test demonstrates a unidirectional causality running from the
fiscal variables to economic growth in validation of the Keynesian theory. Consequently, the study
recommended more allocation of resources for recurrent purposes as well; government should establish the
body that will monitor contract awarding process of capital projects closely, to guard against over estimation of
project cost and stealing of public funds.
H1 Econs Macroeconomic problems and management Essay QuestionJohn Jon
This is an A level H1 econs essay question(economic growth and unemployment) taken from a good junior college's tutorial. The solution was compiled by me. Enjoy!
This document provides an introduction to macroeconomics, including its key topics and goals. It discusses that macroeconomics studies aggregate economic measures of an economy, compared to microeconomics which focuses on individual agents. The main macroeconomic goals covered are low unemployment, price stability, and economic growth. These goals can sometimes complement each other, such as low unemployment and high growth, but can also conflict, such as low unemployment and low inflation. It also outlines some of the key principles of economics, including scarcity, rational self-interest, opportunity costs, and that decisions are made at the margin.
1. This chapter discusses fiscal policy as a tool for stabilizing the economy through manipulating government spending and taxes.
2. It explores discretionary and automatic fiscal adjustments using the AD-AS model and covers problems like recognition lags that complicate fiscal policy effectiveness.
3. Evaluating fiscal policy involves examining standardized budgets that adjust for cyclical factors to determine if policy is expansionary or contractionary.
An introduction of Japan’s "Abenomics"--the economic policies advocated by the Prime Minister of Japan, Shinzo Abe, since December 2012, based upon “three arrows” of monetary policies, fiscal policies and structural reforms. It summarises the policies conducted since it started and the current results.
Government Expenditure and Economic Growth Nexus: Empirical Evidence from Nig...iosrjce
This study has examined the impact of public expenditure on economic growth in Nigeria using time
series data for the period 1970-2012. Secondary data were sourced from the CBN, NBS, journals, text books
etc. The adopted model was fitted with three variables: real GDP, capital and recurrent expenditure. The tools
of analysis were the ADF unit root test and ordinary least square multiple regression accompanied by pairwise
Granger causality test. The major objective of this study is to analyse the impact as well as direction of
causality between the fiscal variables and economic growth. All the variables included in the model are
stationary at level. Empirical findings from the study show that there is positive and insignificant relationship
between capital expenditure and economic growth while recurrent expenditure had a significant positive impact
on economic growth. Also, Granger causality test demonstrates a unidirectional causality running from the
fiscal variables to economic growth in validation of the Keynesian theory. Consequently, the study
recommended more allocation of resources for recurrent purposes as well; government should establish the
body that will monitor contract awarding process of capital projects closely, to guard against over estimation of
project cost and stealing of public funds.
Effect of budget deficits on economic growthNigus Temare
The main objective of this study was to investigate the effect of budget deficit on economic growth in Ethiopia. For this purpose, the study used time series secondary data, and the data was extracted from the World Bank development indicators, Ministry of Finance, and National Planning and Development Commission of Ethiopia. The data covered a period running from 1994 to 2020.The study employed the Autoregressive Distributed Lag (ARDL) co-integration technique to determine the long and short-run relationship between budget deficit and economic growth. The findings resulted from modeling and analysis of the study showed that there exists a negative relationship between budget deficit and economic growth in Ethiopia and these results are consistent with the neoclassical economist schools of thought. Besides, the inflation rate is affecting the economic growth negatively and significantly whereas, government expenditure and trade openness affect the economy positively and statistically significant in the long run. On the other hand, the analysis in the short-run revealed that the budget deficit is positive but statistically insignificant. This indicates that budget deficit changes have no immediate effect on economic growth. The study suggested some policies which are important for the government of Ethiopia to avoid certain levels of the budget deficit to achieve the desired level of growth.
Fiscal policy uses government spending and tax collection to influence macroeconomic conditions like unemployment, inflation, and interest rates. There are two types of fiscal policy: expansionary and contractionary. Expansionary policy involves increasing spending or lowering taxes to boost aggregate demand during recessions. Contractionary policy does the opposite by raising taxes or lowering spending to reduce inflationary pressures in overheating economies. However, fiscal policy can disproportionately impact some groups over others.
Fiscal policy involves discretionary changes to government spending and taxes to achieve economic goals like high employment, price stability, and economic growth. An increase in spending or tax cut expands aggregate demand, while a spending cut or tax increase contracts it. However, fiscal policy faces offsets like crowding out private investment. It also has long and variable time lags making timely responses difficult. Automatic stabilizers like unemployment insurance partially offset downturns. While fiscal policy may be ineffective in normal times, it can boost demand during severe downturns like the Great Depression.
This document discusses why restricting public expenditure growth is important and how it can be controlled. Some believe large government spending undermines economic growth by transferring resources from the productive private sector to the less efficient public sector. This causes issues like higher taxes, crowding out of private investment, inefficient public services, wrong incentives, and resource misallocation. The optimal level of spending is modest and only what is needed for core functions like infrastructure. Spending beyond this point has negative returns. To control spending, governments could reduce their size and scope, restructure agencies, reinvent public sector delivery, devolve programs to local levels, and privatize services the private sector can provide better.
Fiscal policy uses government spending and taxation to influence economic activity. It aims to achieve full employment and price stability. The government establishes fiscal policy through the annual federal budget. Expansionary fiscal policy stimulates the economy through tax cuts and spending increases, while contractionary policy slows growth via tax hikes and spending cuts. However, fiscal policy faces limitations as its effects are difficult to predict and coordinate. Large, sustained deficits lead to rising national debt levels, which can crowd out private investment and increase interest payments over time.
Fiscal policy uses changes in government spending and taxation to influence economic activity. It is a tool governments can use to address recessions or inflation. When the economy is in recession, expansionary fiscal policy like tax cuts or increased spending can boost aggregate demand. When the economy is overheating, contractionary fiscal policy such as tax increases or spending cuts can cool it down. However, fiscal policy is difficult to implement effectively in practice as politicians often fail to enact contractionary policy in good times. This has led to large budget deficits and government debt over time in many countries.
Fiscal policy uses government spending and taxation to influence the economy. It aims to achieve stability without inflation or deflation. The budget estimates revenues and expenditures and is an anti-inflation tool to sustain growth. Revenues come from taxes, fees, loans, etc. and are spent on productive items like infrastructure or non-productive like defense. Fiscal policy can be neutral, expansionary, or contractionary depending on if spending equals, exceeds, or is less than revenues. The objectives are equal wealth distribution, savings, price stability, and economic stability. Limitations include inflexibility, statistics, and decision delays. Islam advocates equal distribution, zakat, and limiting spending imbalances.
This document discusses fiscal policy and its role in stabilizing the economy. It covers several key points:
1) Fiscal policy involves manipulating taxes and government spending to influence output, employment, and inflation. The government can use expansionary policy to boost aggregate demand during recessions or contractionary policy to reduce demand and inflation.
2) Models show how changes in spending and taxes shift the aggregate demand curve. Expansionary policy leads to higher output and deficit spending, while contractionary policy lowers prices but maintains full employment.
3) Problems with fiscal policy include recognition lags, other government goals conflicting with stabilization, and political business cycles that pursue expansion in election years regardless of economic conditions.
This document discusses fiscal policy, which refers to the government's use of spending and taxation to influence the economy. Fiscal policy works by increasing or decreasing government spending and tax levels, based on theories of British economist John Maynard Keynes. It is used alongside monetary policy to direct a country's economic goals. The document provides examples of how fiscal policy can be used in times of recession by lowering taxes to fuel growth or increasing government spending to create jobs. It also notes that fiscal policy affects different groups disproportionately and must be carefully monitored.
This document discusses fiscal policy and two investment options when government spending increases. It defines fiscal policy as using state finances to achieve macroeconomic goals like development, price stability, and employment. When governments increase spending, they issue more bonds and treasury bills to fund the spending. Bonds are long-term fixed income securities, while treasury bills are short-term securities issued by the government. The document analyzes expansionary and contractionary fiscal policy, deficit components, and concludes that fiscal policy objectives are only achieved through effective use of policy tools and timely administration.
This document discusses the long-term implications of fiscal policy, including deficits and public debt. It explains that discretionary fiscal policy can be used to stabilize the economy in the short-run through expansionary or contractionary policies. However, long-term effects include impacts on the budget balance, debt, and implicit liabilities like Social Security. Running large deficits risks increasing debt levels to a point where a government may default or need to resort to inflation. Governments aim to balance budgets over the business cycle to avoid these problems.
Fiscal policy involves the use of government spending, taxation, and borrowing to influence a nation's economy. It aims to achieve full employment, economic growth, price stability, and other economic goals. Keynesians argue that expansionary fiscal policy can boost aggregate demand and pull an economy out of recession, while contractionary fiscal policy can reduce demand and curb inflation. However, critics note that large government deficits may crowd out private sector borrowing and investment by raising interest rates.
Fiscal policy deals with a government's taxation and spending decisions. It has several components, including tax policy, expenditure policy, investment strategies, and debt management. The two main instruments of fiscal policy are the revenue budget, which consists of tax and other receipts, and the expenditure budget, which estimates revenues and expenses over time. Fiscal policy aims to influence macroeconomic indicators like employment, inflation, and economic growth through adjustments to tax rates and public spending. It can take an expansionary, contractionary, or neutral position depending on whether spending is higher, lower, or equal to revenues collected.
Japanese Economic Trends and JETRO's Activities to Attract Foreign Direct Inv...Rangemu
The document discusses Japanese economic trends and JETRO's activities to attract foreign direct investment to Japan. It outlines the achievements of Abenomics, including improved economic indicators. It then discusses JETRO's services that provide information and support to overseas companies to invest in Japan, such as through their website, seminars, and offices in Japan and abroad. JETRO aims to double inbound foreign direct investment to Japan by 2020.
Fiscal policy refers to a government's spending and tax policies. It aims to stabilize economic growth and avoid booms and busts. Fiscal policy tools include government spending, taxation, and borrowing. Governments use these tools to influence aggregate demand and influence goals like economic growth, inflation, and unemployment. Fiscal policy plays a crucial role in mobilizing resources, boosting employment and development, and stabilizing an economy.
Abenomics refers to the economic policies of Prime Minister Shinzo Abe's administration, aimed at revitalizing Japan's economy through three policy "arrows": aggressive monetary easing by the central bank, flexible fiscal spending, and structural reforms to increase growth. The document outlines each of the "three arrows" and discusses their goals of ending deflation and stimulating sustainable growth through policies like deregulation, attracting foreign talent, and supporting startups. However, it notes that while Abenomics has impacted the economy, other factors are also influencing conditions, so its overall effect on moving Japan's economy is uncertain.
The document discusses interest rates, which are the amount charged by a lender to a borrower for using assets. Interest rates affect businesses and banks. During periods of high interest rates, businesses earn more from investments but are less likely to invest in equipment or improvements. Banks also earn more interest but have less to loan out if businesses are not investing. When interest rates are low, businesses may invest more in capital goods but banks earn less interest. Overall, interest rates impact borrowing costs for businesses and banks' profits from lending.
Canada’s small- and medium-size enterprises
(SMEs) are collectively the largest employer in
Canada, employing about 55 per cent of
Canadians (based on Statistics Canada’s Survey
of Employment, Payrolls and Hours 2008).
When you take into account the fact that they
contribute 1.4 times the premiums their
employees do, this makes them the single
largest employer-stakeholder group in the EI
system today. SMEs employ Canadians in every
province and in every sector of the economy,
from the retail and service sectors to
manufacturing and primary industries. This
broad range of industries and employee
requirements make SME owners an excellent
judge of the efficacy of the EI system.
EI is becoming a more and more important
issue for SMEs. In fact, EI is one of the top
priorities for CFIB members across the nation.
This was highlighted in a survey conducted in
the first half of 2009, which found that 48 per
cent of CFIB members listed EI reform as a
priority for their business, behind only the
total tax burden and regulations and paper
burden, both of which are also directly related
to the EI system.
The document discusses several limitations and challenges of fiscal policy as a tool for economic stabilization. It identifies 13 issues that can hamper the effectiveness of fiscal policy: policy lags due to recognition, administrative, and operational delays; difficulties with forecasting economic conditions; challenges determining the appropriate size and timing of fiscal measures; the selective nature of fiscal policy; potential inadequacy or self-offsetting effects of fiscal actions; unintended impacts on income redistribution; issues related to maintaining employment incentives; problems of growing public debt over time; potential adverse psychological reactions; additional difficulties implementing fiscal policy in underdeveloped economies; and administrative challenges in democratic systems with longer legislative and approval processes.
This document discusses estimating fiscal multipliers for the Indian economy. It presents the framework for doing so, including the main fiscal policy levers of government spending on capital/revenue accounts and tax rates. Capital expenditures have the strongest multiplier effect on output. The document estimates multipliers using a structural macroeconomic model that incorporates a fiscal block. It finds the capital expenditure multiplier is 2.45, the transfer payments multiplier is 0.98, and the other revenue expenditure multiplier is 0.99.
Effect of budget deficits on economic growthNigus Temare
The main objective of this study was to investigate the effect of budget deficit on economic growth in Ethiopia. For this purpose, the study used time series secondary data, and the data was extracted from the World Bank development indicators, Ministry of Finance, and National Planning and Development Commission of Ethiopia. The data covered a period running from 1994 to 2020.The study employed the Autoregressive Distributed Lag (ARDL) co-integration technique to determine the long and short-run relationship between budget deficit and economic growth. The findings resulted from modeling and analysis of the study showed that there exists a negative relationship between budget deficit and economic growth in Ethiopia and these results are consistent with the neoclassical economist schools of thought. Besides, the inflation rate is affecting the economic growth negatively and significantly whereas, government expenditure and trade openness affect the economy positively and statistically significant in the long run. On the other hand, the analysis in the short-run revealed that the budget deficit is positive but statistically insignificant. This indicates that budget deficit changes have no immediate effect on economic growth. The study suggested some policies which are important for the government of Ethiopia to avoid certain levels of the budget deficit to achieve the desired level of growth.
Fiscal policy uses government spending and tax collection to influence macroeconomic conditions like unemployment, inflation, and interest rates. There are two types of fiscal policy: expansionary and contractionary. Expansionary policy involves increasing spending or lowering taxes to boost aggregate demand during recessions. Contractionary policy does the opposite by raising taxes or lowering spending to reduce inflationary pressures in overheating economies. However, fiscal policy can disproportionately impact some groups over others.
Fiscal policy involves discretionary changes to government spending and taxes to achieve economic goals like high employment, price stability, and economic growth. An increase in spending or tax cut expands aggregate demand, while a spending cut or tax increase contracts it. However, fiscal policy faces offsets like crowding out private investment. It also has long and variable time lags making timely responses difficult. Automatic stabilizers like unemployment insurance partially offset downturns. While fiscal policy may be ineffective in normal times, it can boost demand during severe downturns like the Great Depression.
This document discusses why restricting public expenditure growth is important and how it can be controlled. Some believe large government spending undermines economic growth by transferring resources from the productive private sector to the less efficient public sector. This causes issues like higher taxes, crowding out of private investment, inefficient public services, wrong incentives, and resource misallocation. The optimal level of spending is modest and only what is needed for core functions like infrastructure. Spending beyond this point has negative returns. To control spending, governments could reduce their size and scope, restructure agencies, reinvent public sector delivery, devolve programs to local levels, and privatize services the private sector can provide better.
Fiscal policy uses government spending and taxation to influence economic activity. It aims to achieve full employment and price stability. The government establishes fiscal policy through the annual federal budget. Expansionary fiscal policy stimulates the economy through tax cuts and spending increases, while contractionary policy slows growth via tax hikes and spending cuts. However, fiscal policy faces limitations as its effects are difficult to predict and coordinate. Large, sustained deficits lead to rising national debt levels, which can crowd out private investment and increase interest payments over time.
Fiscal policy uses changes in government spending and taxation to influence economic activity. It is a tool governments can use to address recessions or inflation. When the economy is in recession, expansionary fiscal policy like tax cuts or increased spending can boost aggregate demand. When the economy is overheating, contractionary fiscal policy such as tax increases or spending cuts can cool it down. However, fiscal policy is difficult to implement effectively in practice as politicians often fail to enact contractionary policy in good times. This has led to large budget deficits and government debt over time in many countries.
Fiscal policy uses government spending and taxation to influence the economy. It aims to achieve stability without inflation or deflation. The budget estimates revenues and expenditures and is an anti-inflation tool to sustain growth. Revenues come from taxes, fees, loans, etc. and are spent on productive items like infrastructure or non-productive like defense. Fiscal policy can be neutral, expansionary, or contractionary depending on if spending equals, exceeds, or is less than revenues. The objectives are equal wealth distribution, savings, price stability, and economic stability. Limitations include inflexibility, statistics, and decision delays. Islam advocates equal distribution, zakat, and limiting spending imbalances.
This document discusses fiscal policy and its role in stabilizing the economy. It covers several key points:
1) Fiscal policy involves manipulating taxes and government spending to influence output, employment, and inflation. The government can use expansionary policy to boost aggregate demand during recessions or contractionary policy to reduce demand and inflation.
2) Models show how changes in spending and taxes shift the aggregate demand curve. Expansionary policy leads to higher output and deficit spending, while contractionary policy lowers prices but maintains full employment.
3) Problems with fiscal policy include recognition lags, other government goals conflicting with stabilization, and political business cycles that pursue expansion in election years regardless of economic conditions.
This document discusses fiscal policy, which refers to the government's use of spending and taxation to influence the economy. Fiscal policy works by increasing or decreasing government spending and tax levels, based on theories of British economist John Maynard Keynes. It is used alongside monetary policy to direct a country's economic goals. The document provides examples of how fiscal policy can be used in times of recession by lowering taxes to fuel growth or increasing government spending to create jobs. It also notes that fiscal policy affects different groups disproportionately and must be carefully monitored.
This document discusses fiscal policy and two investment options when government spending increases. It defines fiscal policy as using state finances to achieve macroeconomic goals like development, price stability, and employment. When governments increase spending, they issue more bonds and treasury bills to fund the spending. Bonds are long-term fixed income securities, while treasury bills are short-term securities issued by the government. The document analyzes expansionary and contractionary fiscal policy, deficit components, and concludes that fiscal policy objectives are only achieved through effective use of policy tools and timely administration.
This document discusses the long-term implications of fiscal policy, including deficits and public debt. It explains that discretionary fiscal policy can be used to stabilize the economy in the short-run through expansionary or contractionary policies. However, long-term effects include impacts on the budget balance, debt, and implicit liabilities like Social Security. Running large deficits risks increasing debt levels to a point where a government may default or need to resort to inflation. Governments aim to balance budgets over the business cycle to avoid these problems.
Fiscal policy involves the use of government spending, taxation, and borrowing to influence a nation's economy. It aims to achieve full employment, economic growth, price stability, and other economic goals. Keynesians argue that expansionary fiscal policy can boost aggregate demand and pull an economy out of recession, while contractionary fiscal policy can reduce demand and curb inflation. However, critics note that large government deficits may crowd out private sector borrowing and investment by raising interest rates.
Fiscal policy deals with a government's taxation and spending decisions. It has several components, including tax policy, expenditure policy, investment strategies, and debt management. The two main instruments of fiscal policy are the revenue budget, which consists of tax and other receipts, and the expenditure budget, which estimates revenues and expenses over time. Fiscal policy aims to influence macroeconomic indicators like employment, inflation, and economic growth through adjustments to tax rates and public spending. It can take an expansionary, contractionary, or neutral position depending on whether spending is higher, lower, or equal to revenues collected.
Japanese Economic Trends and JETRO's Activities to Attract Foreign Direct Inv...Rangemu
The document discusses Japanese economic trends and JETRO's activities to attract foreign direct investment to Japan. It outlines the achievements of Abenomics, including improved economic indicators. It then discusses JETRO's services that provide information and support to overseas companies to invest in Japan, such as through their website, seminars, and offices in Japan and abroad. JETRO aims to double inbound foreign direct investment to Japan by 2020.
Fiscal policy refers to a government's spending and tax policies. It aims to stabilize economic growth and avoid booms and busts. Fiscal policy tools include government spending, taxation, and borrowing. Governments use these tools to influence aggregate demand and influence goals like economic growth, inflation, and unemployment. Fiscal policy plays a crucial role in mobilizing resources, boosting employment and development, and stabilizing an economy.
Abenomics refers to the economic policies of Prime Minister Shinzo Abe's administration, aimed at revitalizing Japan's economy through three policy "arrows": aggressive monetary easing by the central bank, flexible fiscal spending, and structural reforms to increase growth. The document outlines each of the "three arrows" and discusses their goals of ending deflation and stimulating sustainable growth through policies like deregulation, attracting foreign talent, and supporting startups. However, it notes that while Abenomics has impacted the economy, other factors are also influencing conditions, so its overall effect on moving Japan's economy is uncertain.
The document discusses interest rates, which are the amount charged by a lender to a borrower for using assets. Interest rates affect businesses and banks. During periods of high interest rates, businesses earn more from investments but are less likely to invest in equipment or improvements. Banks also earn more interest but have less to loan out if businesses are not investing. When interest rates are low, businesses may invest more in capital goods but banks earn less interest. Overall, interest rates impact borrowing costs for businesses and banks' profits from lending.
Canada’s small- and medium-size enterprises
(SMEs) are collectively the largest employer in
Canada, employing about 55 per cent of
Canadians (based on Statistics Canada’s Survey
of Employment, Payrolls and Hours 2008).
When you take into account the fact that they
contribute 1.4 times the premiums their
employees do, this makes them the single
largest employer-stakeholder group in the EI
system today. SMEs employ Canadians in every
province and in every sector of the economy,
from the retail and service sectors to
manufacturing and primary industries. This
broad range of industries and employee
requirements make SME owners an excellent
judge of the efficacy of the EI system.
EI is becoming a more and more important
issue for SMEs. In fact, EI is one of the top
priorities for CFIB members across the nation.
This was highlighted in a survey conducted in
the first half of 2009, which found that 48 per
cent of CFIB members listed EI reform as a
priority for their business, behind only the
total tax burden and regulations and paper
burden, both of which are also directly related
to the EI system.
The document discusses several limitations and challenges of fiscal policy as a tool for economic stabilization. It identifies 13 issues that can hamper the effectiveness of fiscal policy: policy lags due to recognition, administrative, and operational delays; difficulties with forecasting economic conditions; challenges determining the appropriate size and timing of fiscal measures; the selective nature of fiscal policy; potential inadequacy or self-offsetting effects of fiscal actions; unintended impacts on income redistribution; issues related to maintaining employment incentives; problems of growing public debt over time; potential adverse psychological reactions; additional difficulties implementing fiscal policy in underdeveloped economies; and administrative challenges in democratic systems with longer legislative and approval processes.
This document discusses estimating fiscal multipliers for the Indian economy. It presents the framework for doing so, including the main fiscal policy levers of government spending on capital/revenue accounts and tax rates. Capital expenditures have the strongest multiplier effect on output. The document estimates multipliers using a structural macroeconomic model that incorporates a fiscal block. It finds the capital expenditure multiplier is 2.45, the transfer payments multiplier is 0.98, and the other revenue expenditure multiplier is 0.99.
The President's plan aims to boost economic growth and job creation through short-term investments while reducing the deficit over 10 years. It includes $4.4 trillion in deficit reduction through spending cuts, health care savings, and tax reforms. The plan cuts the payroll tax for workers and businesses, extends unemployment benefits, and invests in infrastructure to create jobs now while reducing tax breaks for the wealthy to cut the long-term deficit. If enacted, the national debt would fall to 73% of GDP by 2021 compared to 90.7% if no action is taken.
Focus on fiscal policy – balanced budget fiscal expansiontutor2u
The document discusses the concept of a "balanced budget fiscal expansion" which aims to stimulate economic growth while maintaining a balanced budget. It involves cutting some spending, like public employee wages, and using the savings to increase other spending, like on infrastructure, that is expected to have a higher fiscal multiplier effect. Several factors can affect the size of the fiscal multiplier, including the type of spending/tax change, who benefits, private sector expectations and credit availability, and responses from monetary policy and other countries. Examples given of policies using this concept include bringing forward tax increases to fund temporary infrastructure spending or cutting some spending to increase capital investment.
Focus on fiscal policy – balanced budget fiscal expansiontutor2u
The document discusses the concept of a "balanced budget fiscal expansion" which aims to stimulate economic growth while maintaining a balanced budget. It involves cutting some spending, like public employee wages, and using the savings to increase other spending, like on infrastructure, that is expected to have a higher fiscal multiplier effect. Several factors can affect the size of the fiscal multiplier, including the type of spending/tax change, who benefits, private sector expectations and credit availability, and responses from monetary policy and other countries. Examples given of policies using this concept include bringing forward tax increases to fund temporary infrastructure spending or cutting some spending to increase capital investment.
This document summarizes a study analyzing the effects of increasing the Canada Pension Plan (CPP) contribution rate on the labor market. The study uses a macroeconomic model called FOCUS to forecast the response. The model predicts that a 1% increase in the CPP rate would lead to:
1) A decrease in real GDP, consumption, and investment over the next 5 years as workers' take-home pay is reduced.
2) Higher unemployment and lower real wages as employers adjust by hiring fewer workers and raising prices.
3) Potential inflation as employers pass costs to consumers, though monetary policy responses could dampen this effect.
Contemporary Australian Fiscal Policy (2019)AndrewTibbitt1
The document summarizes contemporary fiscal policy in Australia, specifically focusing on budget repair efforts since the global financial crisis. It discusses how the government has aimed to return the budget to surplus through spending restraint and maintaining tax revenue in order to reduce high net government debt levels. However, budget repair has been a slow process due to economic weakness, revenue shortfalls, and difficulties passing savings measures. The document also outlines tax reform proposals to address bracket creep in the income tax system by expanding brackets to prevent more people being pushed into higher tax brackets over time due to inflation.
The document discusses the federal budget deficit and its drivers. It notes that the deficit grew significantly from large surpluses in the early 2000s due to tax cuts, defense spending increases, and rising healthcare costs. Making the tax cuts permanent would cost trillions over time. The president's proposed budget would cut domestic programs and Medicaid while extending the tax cuts, worsening deficits. A balanced approach of spending cuts and revenue increases is recommended to reduce deficits in a responsible way.
The document discusses India's Fiscal Responsibility and Budget Management Act of 2003. It provides background on fiscal responsibility and defines key fiscal terms like fiscal deficit, revenue deficit, primary deficit, and gross fiscal deficit. It outlines the objectives of the Act, which were to increase fiscal transparency, introduce sustainable debt management, and aim for long-term fiscal stability. It also discusses the impact of fiscal policy on issues like inflation, economic growth, and farmers' suicides. Current implementation of the Act aims to gradually reduce the fiscal deficit target to around 2-3% of GDP.
Fiscal policy can be used by governments to stabilize economies and prevent unemployment and inflation. This involves manipulating public spending and taxes. The chapter will cover legislative mandates for stabilization, tools of fiscal policy using the AD-AS model, discretionary vs automatic fiscal adjustments, and problems with fiscal policy. It summarizes key aspects of expansionary and contractionary fiscal policy and how they shift aggregate demand curves. It also discusses evaluating the effects of fiscal policy using full employment budgets and issues that complicate effective fiscal policy.
John Maynard Keynes was a British economist in the early 20th century whose ideas had a major impact on modern economic theory and government fiscal policy. He advocated for interventionist government policies using fiscal and monetary measures to mitigate the adverse effects of economic downturns. Keynesians believe the government can use changes in spending and taxes to influence aggregate demand and achieve goals like high employment and price stability. However, fiscal policy does not operate in isolation and may be offset by factors like crowding out of private sector spending or individuals anticipating future tax changes.
The document discusses Australia's 2013/2014 budget and fiscal policy. It notes that the budget indicated that taxes like the carbon tax failed to raise expected revenue. The budget reduced expenditure relative to GDP, representing a contractionary fiscal policy that would reduce income. However, to increase income the government would need an expansionary fiscal policy stance. The document uses the IS-LM model to explain how an increase in government spending would shift the IS curve rightward, raising equilibrium income.
International Portfolio management through Stocktrak (US and foreign stocks, US and foreign bonds, futures, options, foreign-exchange-exposure hedging strategies)
After the US dollar replaced gold, the US debt became the attention worldwide, thus the demand for the US dollar continued, furthermore the extremely low interest of the dollar. This helped the US government to borrow great amounts of debt as well as kept the creditors pleased. Due to the pandemic, the US economy retrograded because of the tax cut and unproductive rescue spending plan plus surpassing spending of the government. The rising inflation starts to increase to high levels, which certainly the government must cut back spending or its patterns, while this will lead to uncertain consequences for the long future. This paper discusses several different perspectives on the US government's sustainability as its ability to settle the debt in future, the fate of growth burdened with that debt through the neoclassical mode of growth, and also the effect of anxiety of defaults and unfunded obligations. Inversely, it explores the strength of the dollar with a low-interest rate and its sustainability worldwide. We also propose ways helping of strengthen the fiscal government position and solutions to help the economy recover in long term and to easiest the situation. In the synopsis, we propose something that could affect and shake the global market.
This slide deck outlines the models CBO uses to assess the budgetary effects of alternative economic scenarios such as those presented in CBO’s Current View of the Economy in 2023 and 2024 and the Budgetary Implications (November 2022).
The document provides a summary of global wage trends based on data from the United Nations and International Labour Organisation. Some key points include:
- Global wage growth decelerated in 2013 compared to 2012 and has yet to rebound to pre-crisis rates.
- Wage growth has been driven mostly by emerging and developing economies, with China alone accounting for almost half of global wage growth.
- Growth in wages in developed economies has remained flat.
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The Job Impact of the American Recovery and Reinvestment Plan
1.
2. 1
Table of Contents
A. Aggregate Jobs Effects.........................................................................................................3
B. Jobs Effects of the Components of the Recovery Package .................................................5
C. The Timing of Job Creation ................................................................................................7
D. Breakdown by Industry .......................................................................................................7
E. Effects on Different Demographic Groups .........................................................................9
F. Kinds of Jobs ...................................................................................................................... 10
G. Conclusions ....................................................................................................................... 11
APPENDIX 1 .......................................................................................................................... 12
ENDNOTES........................................................................................................................... 13
3. 2
A key goal enunciated by the President-Elect concerning the American Recovery and Reinvestment
Plan is that it should save or create at least 3 million jobs by the end of 2010. For this reason, we
have undertaken a preliminary analysis of the jobs effects of some of the prototypical recovery
packages being discussed. Our analysis will surely evolve as we and other economists work further
on this topic. The results will also change as the actual package parameters are determined in
cooperation with the Congress. Nevertheless, this report suggests a methodology for ensuring that
the package contains enough stimulus that we can have confidence that it will create sufficient jobs
to meet the President-Elect’s goals.
This report also presents some discussion of the trade-offs involved in choosing different elements
of the package. For example, how do tax cuts, fiscal relief to the states, and increases in
infrastructure spending compare in terms of jobs created? Similarly, how do the different types of
spending differ in terms of the timing of the jobs they will create? The report also discusses the
types of jobs that will be created and the possible demographic composition of the workers who will
find jobs as a result of the stimulus.
We reach several key preliminary findings:
• A package in the range that the President-Elect has discussed is expected to create
between three and four million jobs by the end of 2010.
• Tax cuts, especially temporary ones, and fiscal relief to the states are likely to create
fewer jobs than direct increases in government purchases. However, because there is a
limit on how much government investment can be carried out efficiently in a short time
frame, and because tax cuts and state relief can be implemented quickly, they are crucial
elements of any package aimed at easing economic distress quickly.
• Certain industries, such as construction and manufacturing, are likely to experience
particularly strong job growth under a recovery package that includes an emphasis on
infrastructure, energy, and school repair. But, the more general stimulative measures,
such as a middle class tax cut and fiscal relief to the states, as well as the feedback effects
of greater employment in key industries, mean that jobs are likely to be created in all
sectors of the economy.
• More than 90 percent of the jobs created are likely to be in the private sector. Many of
the government jobs are likely to be professionals whose jobs are saved from state and
local budget cuts by state fiscal relief.
• A package is likely to create jobs paying a range of wages. It is also likely to move many
workers from part-time to full-time work.
It should be understood that all of the estimates presented in this memo are subject to significant
margins of error. There is the obvious uncertainty that comes from modeling a hypothetical
package rather than the final legislation passed by the Congress. But, there is the more fundamental
uncertainty that comes with any estimate of the effects of a program. Our estimates of economic
relationships and rules of thumb are derived from historical experience and so will not apply exactly
in any given episode. Furthermore, the uncertainty is surely higher than normal now because the
current recession is unusual both in its fundamental causes and its severity.
4. 3
A. Aggregate Jobs Effects
Estimating the aggregate employment effects of the proposed American Recovery and Reinvestment
Plan involves several steps. The first is to specify a prototypical package. We have assumed a
package just slightly over the $775 billion currently under discussion. It includes a range of
measures, all of which have been discussed publicly. Among the key components are:
• Substantial investments in infrastructure, education, health, and energy.
• Temporary programs to protect the most vulnerable from the deep recession, including
increases in food stamps and expansions of unemployment insurance.
• State fiscal relief designed to alleviate cuts in healthcare, education, and prevent increases
in state and local taxes.
• Business investment incentives.
• A middle class tax cut along the lines of the Making Work Pay tax cut that the President-
Elect proposed during the campaign.
A second step is to simulate the effects of the prototypical package on GDP. We use multipliers
that we feel represent a consensus of a broad range of economists and professional forecasters. Our
particular multipliers for an increase in government purchases of 1% of GDP and a decrease in taxes
of 1% of GDP are given in Appendix 1. They are broadly similar to those implied by the Federal
Reserve’s FRB/US model and the models of leading private forecasters, such as Macroeconomic
Advisers.
The final step is to take the effect on GDP and translate it into job creation. Not all of the increased
output reflects increased employment: some comes from increases in hours of work among
employed workers and some comes from higher productivity. We therefore use the relatively
conservative rule of thumb that a 1 percent increase in GDP corresponds to an increase in
employment of approximately 1 million jobs, or about three-quarters of a percent. This has been
the rough correspondence over history and matches the FRB/US model reasonably well. The effect
on jobs using the estimates from most private sector forecasting models would be somewhat larger.
We look at the effects in 2010Q4, which is the end of the two-year period that is the focus of the
recovery plan.
Table 1 shows that we expect the proposed recovery plan to have significant effects on the aggregate
number of jobs created, relative to the no-stimulus baseline.
5. 4
Table 1
Aggregate Effect of the Recovery Package on GDP and Jobs in 2010Q4
Real GDP (billions
of chained 2000 $) Payroll Employment
Without Stimulus $11,770 133,876,000
With Stimulus $12,203 137,550,000
Effect of Package Increase GDP by 3.7% Increase jobs by 3,675,000
Source: Authors’ calculations based on methodology described above and multipliers
described in Appendix 1.
The table shows that we expect the plan to more than meet the goal of creating or saving 3 million
jobs by 2010Q4. There are two important points to note, however:
First, the likely scale of employment loss is extremely large. The U.S. economy has already lost
nearly 2.6 million jobs since the business cycle peak in December 2007. In the absence of stimulus,
the economy could lose another 3 to 4 million more. Thus, we are working to counter a potential
total job loss of at least 5 million. As Figure 1 shows, even with the large prototypical package, the
unemployment rate in 2010Q4 is predicted to be approximately 7.0%, which is well below the
approximately 8.8% that would result in the absence of a plan.1
6. 5
Second, as emphasized above, there is considerable uncertainty in our estimates: both the impact of
the package on GDP and the relationship between higher GDP and job creation are hard to
estimate precisely. In light of the substantial quarter-to-quarter variation in the estimates of job
creation, we believe a reasonable range for 2010Q4 is 3.3 to 4.1 million jobs created.
B. Jobs Effects of the Components of the Recovery Package
To estimate the jobs effect of each potential component of the package, we use an analysis similar to
what we use to estimate the overall jobs effect. We take an estimate of the amount of spending
related to a component and apply the relevant multiplier to estimate the likely overall effect on
GDP. The total effect on jobs is then estimated using the 1% of GDP equals 1 million jobs rule of
thumb.
We further consider the direct and indirect effects of the program. The direct effects are those
coming from the hiring directly caused by the program. Here we include not just workers hired by
the federal government under the program, which we expect to be a relatively small number, but
workers hired under projects financed by the program and workers hired to produce the goods
demanded as the result of tax credits and subsidies targeted to specific activities (such as smart
electrical meters and software systems for health IT). The indirect effects are those coming from
the fact that the newly employed workers spend more and this stimulates other industries. For core
spending programs, we assume the direct output effects move one-for-one with the spending
increase. Broad tax cuts have jobs effects, but they stem only from indirect effects: tax cuts only
have effects when people go out and spend the money. One dollar of state fiscal relief is assumed to
result in $0.60 in higher government purchases (largely averting spending reductions that were
assumed in the baseline) and $0.30 in lower government taxes (largely due to preventing state and
local tax increases that were assumed in the baseline). The results are shown in Table 2.
7. 6
Table 2
Effects of the Components of the Recovery Package on Jobs in 2010Q4
Component Total Effect Direct Effect Indirect Effect
Energy 459,000 305,000 153,000
Infrastructure 377,000 236,000 142,000
Health Care 244,000 166,000 78,000
Education 250,000 166,000 83,000
Protecting Vulnerable 549,000 140,000 409,000
State Relief 821,000 442,000 379,000
Making Work Pay 505,000 0 505,000
Tax Cut
Business Tax 470,000 0 470,000
Incentives
All Components 3,675,000 1,456,000 2,219,000
Source: Authors’ calculations. See text for details.
These estimates show that all components of the program make important contributions to job
creation. The direct spending programs have the largest job bang for the buck. State fiscal relief
also has important direct and indirect effects on jobs, and so very strong job bang for the buck. Tax
cuts, though they have no direct jobs effect and generally affect consumer and firm spending only
gradually, also have important job creation benefits by the end of the two-year window.2
It is important to note that the jobs effects of temporary broad-based tax cuts would probably be
considerably smaller. Large proportions of temporary tax cuts are saved, blunting their stimulatory
impact on output and employment. The prototypical recovery package only provides for the first
two years of the Making Work Pay tax cut. Our analysis assumes that households treat the tax cut as
permanent in determining their short-run spending.
8. 7
C. The Timing of Job Creation
The different components of the stimulus package also differ in terms of the timing of the jobs they
will create, and therefore serve different purposes in terms of cushioning the downturn and
fostering recovery. Because it takes time to carry out new spending programs authorized by
legislation, we expect the jobs created by spending on infrastructure, education, health, and energy
to be concentrated in 2010 and 2011. At the other extreme are funds to protect the most
vulnerable, which are generally spent promptly, and tax incentives for businesses to invest quickly.
State fiscal relief and broad-based tax cuts fall in between: funds for these programs can be
disbursed quickly, but there can be a delay before the main response of spending.
Table 3 summarizes the information about the timing of the effects of the different components.
For example, the second entry in the middle column indicates that we estimate that the spending on
protecting the vulnerable will create 83% as many jobs in 2009Q4 as it will in 2010Q4. That is, this
spending will have nearly equal effects in the two periods.
Table 3
Effects of the Components of the Recovery Package on Job Creation
in 2009Q4 and 2011Q4 relative to 2010Q4
Component 2009Q4 2011Q4
Energy, Infrastructure, 46% 41%
Health, Education
Protecting the Vulnerable 83 17
State Relief 48 48
Business Tax Incentives 83 28
Making Work Pay Tax Cut 67 37
Source: Authors’ calculations. See text for details.
D. Breakdown by Industry
To get more detailed information on the breakdown of the jobs created, we use a simulation from a
prominent private forecaster on a plan that is similar – though not identical – to the type of plan the
President-Elect is considering. The simulation yields a breakdown by industry of jobs created in
2010Q4. We combine the shares of jobs created in each industry from this simulation with our
estimates of total job creation from a likely-sized program. For example, if the simulation implied
that 18.4% of the jobs created would be in construction, our estimate of the number of jobs created
in construction in 2010Q4 is 18.4% of our estimate of overall job creation of 3.675 million, or
678,000. The results of this exercise are shown in Table 4.
9. 8
Table 4
Job Creation of Recovery Package by Industry
Industry Jobs Created in 2010Q4
Mining 26,000
Construction 678,000
Manufacturing – Total 408,000
Wholesale Trade 158,000
Retail Trade 604,000
Information 50,000
Financial Activities 214,000
Professional and Business Services 345,000
Education and Health Services 240,000
Leisure and Hospitality 499,000
Other Services 99,000
Utilities 11,000
Transportation and Warehousing 98,000
Government – Total 244,000
Total 3,675,000
Sources: Authors’ calculations and estimates of effects by industry from Mark Zandi,
“The Economic Impact of a $600 Billion Fiscal Stimulus Package,” Moody’s
economy.com, Nov. 28, 2008.
While estimating the effects at the industry level is even more difficult than estimating aggregate
effects, there are well-established cyclical differences across industries that underlie the qualitative
results of this analysis. For example, the largest percentage declines in employment over the past
year have been in construction and manufacturing.
The estimates suggest that 30% of the jobs created will be in construction and manufacturing, even
though these industries employ only 15% of all workers. Both sectors have been particularly hard-
hit recently. The other two significant sectors that are disproportionately represented in job creation
are retail trade and leisure and hospitality (mining is also represented disproportionately, but employs
less than 1% of all workers). Construction, manufacturing, retail trade, and leisure and hospitality all
employ large numbers of low- and middle-income workers whose incomes have stagnated in recent
decades and who have suffered greatly in the current recession.
10. 9
E. Effects on Different Demographic Groups
The sensitivity of employment and unemployment to the overall health of the economy varies across
demographic groups of the population. For example, African-American, Hispanic, young, less-
educated, and male workers all tend to suffer disproportionately during recessions. The experience
in the current downturn is typical: unemployment rates among these groups have risen substantially
more than the overall unemployment rate. Historically, when unemployment falls overall, these
groups tend to experience particularly large employment gains.
On the other hand, some groups, such as older, college-educated, and female workers, tend to
experience smaller rises in unemployment for a given rise in the overall rate. For example, in the
current recession, during which the overall unemployment rate has risen 2.3 percentage points, the
unemployment rate for women has increased 1.6 percentage points. Historically, when
unemployment falls overall, these groups tend to experience smaller employment gains.
It is possible to look more closely at the possible gender composition of jobs created by the recovery
package by considering the industrial breakdown of job creation from Table 4. Data are readily
available on the fraction of women in each industry. If we assume that jobs created in an industry
will be allocated between men and women following the industry average, we can estimate the jobs
likely to go to women by industry. The proportion female and this estimate of the likely jobs created
for women in each industry are given in Table 5. Summing across industries suggests that the total
number of created jobs likely to go to women is roughly 42% of the jobs created by the package.
Given that so far in the recession women have accounted for roughly 20% of the decline in payroll
employment, this calculation could reflect that the stimulus package skews job creation somewhat
toward women, possibly as a result of the investments in healthcare, education, and state fiscal
relief.3 However, it is important to keep in mind that it is possible that the gender composition of
the jobs created by industry will not follow the industry average, and so smaller fractions are
possible.4
11. 10
Table 5
Fraction of Employment that is Female
Number of Created Jobs
Industry Fraction Female Expected to go to Women
Mining 13% 3,000
Construction 13 88,000
Manufacturing – Total 29 117,000
Wholesale Trade 31 49,000
Retail Trade 50 304,000
Information 42 21,000
Financial Activities 59 127,000
Professional and Business Services 45 154,000
Education and Health Services 77 186,000
Leisure and Hospitality 53 262,000
Other Services 52 52,000
Utilities 26 3,000
Transportation and Warehousing 24 23,000
Government – Total 57 140,000
Total 49 1,529,000
Sources: BLS Establishment Survey and authors’ calculations from Table 4.
One useful consequence of this consideration of demographic and industrial composition is to again
point out the importance of balance in the recovery package. Much of the discussion of the
recovery plan has focused on infrastructure, rebuilding schools, and energy investments. This type
of spending disproportionately creates jobs in sectors like construction. But, the prototypical
package also includes substantial quantities of investment in education and health care, as well as of
state fiscal relief. This component tends to encourage employment in sectors such as education and
health. The recovery package is also likely to include a middle-class tax cut. This component should
further spread the jobs benefits of the package. For example, the indirect effects are likely to be
large in retail trade. Because different groups have different representation in various industries,
maintaining a range of components is important for ensuring that the benefits of job creation are
spread broadly among all Americans.
F. Kinds of Jobs
The recovery plan is likely to create jobs paying a range of wages. Significant shares of jobs are
created in sectors that pay above average, such as construction and business services, as well as
sectors that pay below average, such as retail trade and leisure/hospitality (hotels, restaurants).
Union representation is higher than average in some of the sectors in which the recovery package
creates significant numbers of jobs. Union coverage in construction and manufacturing, which
12. 11
account for almost one-third of the jobs created by the package, are 14% and 11%, respectively,
compared to 7.5% coverage for the private sector overall.
Along the same lines, recent research by Robert Pollin and Jeannette Wicks-Lim (available at
http://www.peri.umass.edu/green_jobs) suggests that investments in green energy will create jobs
that generally pay well above the typical wage. For example, compared to the national median wage
of $15 in 2007, some of the jobs created by these investments include: electricians (median wage,
$21.50/hour), carpenters ($18/hour), operations managers ($43/hour), and production supervisors
($23/hour). The occupation-weighted average wage in green energy jobs is about 20% above the
national average.5
Finally, in addition to creating high-quality jobs, the program is likely to improve existing jobs. One
important way that it will do this is by moving workers from part-time to full-time work. Over the
past year, as the overall unemployment rate has risen by 2.3 percentage points, the number of
workers working part-time for economic reasons has risen by 3.4 million. This is a main reason why
the underemployment rate rose to 13.5% in December compared to 8.7% a year earlier.6 We
estimate that our program will cause the unemployment rate to be about 1.8 points lower in 2010Q4
than it otherwise would have been. If the same relationship between movements in overall
unemployment and movements in workers working part-time for economic reasons holds for the
effects of the recovery package, the program will allow about 1.8/2.3 times 3.4 million, or 2.7
million, workers to move from part time to full time. It will reduce the underemployment rate by
more than three percentage points compared to its level in the absence of the recovery package.
G. Conclusions
This study has sought to investigate the likely job creation effects of the American Recovery and
Reinvestment Plan currently under consideration. As emphasized at many points in the analysis,
there is substantial uncertainty around all of our estimates. Nevertheless, we believe they can
provide useful guidance as we go forward. Among the key lessons from the analysis are:
• The recovery plan needs to be large to counter the tremendous job loss that is likely to
occur.
• The plan needs to include a range of components, such as direct government spending, state
fiscal relief, and tax cuts to ensure that jobs are created quickly and throughout the economy.
• The range of components is also important for ensuring that both male and female workers
benefit from the program.
• An aggressive recovery program is important for protecting all Americans from job loss, but
particularly for aiding those groups disproportionately hurt by the rise in the overall
unemployment rate.
• A well designed recovery plan will not only create numerous jobs, but also many jobs paying
good wages and providing full-time employment.
13. 12
APPENDIX 1
Multipliers for Different Types of Spending
For the output effects of the recovery package, we started by averaging the multipliers for increases
in government spending and tax cuts from a leading private forecasting firm and the Federal
Reserve’s FRB/US model. The two sets of multipliers are similar and are broadly in line with other
estimates. We considered multipliers for the case where the federal funds rate remains constant,
rather than the usual case where the Federal Reserve raises the funds rate in response to fiscal
expansion, on the grounds that the funds rate is likely to be at or near its lower bound of zero for
the foreseeable future.
We applied these multipliers directly to the straightforward elements of the package, but made some
adjustments for elements that take the form of transfers to the states and tax-based investment
incentives. For transfers to the states, we assumed that 60% is used to prevent spending reductions,
30% is used to avoid tax increases, and the remainder is used to reduce the amount that states dip
into rainy day funds. We assumed that these effects occur with a one quarter lag. For tax-based
investment incentives, we used the rule of thumb that the output effects correspond to one-fourth
of the effects of an increase in government spending with the same immediate revenue effects. This
implies a fairly small effect from a given short-term revenue cost of the incentives. But, because
much of the lost revenue is recovered in the long run, it implies a fairly substantial short-run impact
for a given long-run revenue loss. We confess to considerable uncertainty about our choice of
multipliers for this element of the package.
Output effects of a permanent stimulus of 1% of GDP (percent)
Government Tax
Quarter Purchases Cuts
1 1.05 0.00
2 1.24 0.49
3 1.35 0.58
4 1.44 0.66
5 1.51 0.75
6 1.53 0.84
7 1.54 0.93
8 1.57 0.99
9 1.57 0.99
10 1.57 0.99
11 1.57 0.99
12 1.57 0.99
13 1.57 0.99
14 1.57 0.99
15 1.57 0.99
16 1.55 0.98
14. 13
ENDNOTES
1Forecasts of the unemployment rate without the recovery plan vary substantially. Some private forecasters anticipate
unemployment rates as high as 11% in the absence of action.
2 These estimates, like the aggregate ones, are subject to substantial margins of error. One additional source of
uncertainty concerns the impact of the state fiscal relief. We believe that the rule of thumb that 60% of funds devoted
to state relief will be used to prevent spending cuts and that 30% will be used to prevent tax increases, and that these
effects will occur with a lag of about three months, are good first approximations. But, the effects will clearly differ
across states, and the average could differ from what we have assumed. Another source of uncertainty concerns the jobs
effects of a given increase in GDP. Again, we think that our assumption that the relation between higher GDP and
increased employment is the same across the different components of the package is a good starting point. But, the
exact effects are likely to vary somewhat across components. For example, simulations using private-sector forecasting
models suggest that the number of jobs created by a given increase in GDP is likely to be slightly higher for broad-based
tax cuts than for infrastructure spending, presumably because the jobs created by infrastructure spending pay higher
wages on average. This effect is small, however, and does not reverse the conclusion that a dollar of infrastructure
spending is more effective in creating jobs than a dollar of tax cuts.
3This percentage is calculated as the difference in female payroll employment from November 2007 to November 2008
(December 2008 data were not yet available) divided by the change in total payroll employment over the same time
period.
4It is precisely because of the uncertainty surrounding this type of calculation that we do not do similar calculations for
groups that are a smaller fraction of the labor force. For teenagers, for example, it is likely that the within- industry
variation in cyclicality for demographic groups swamps the across-industry variation.
5 These data are from the BLS Occupational Employment Survey.
6The underemployment rate is the most comprehensive measure of labor underutilization (measure U-6 in Table A-12
of the monthly jobs report) published monthly by the BLS.