Questions
1. Draw a Keynesian cross diagram to show the effect of an increase in benefits when the economy is operating below potential GDP.
2. Explain what is meant by the output gap. How might the pandemic and accompanying emergency health measures have affected the size of the output gap?
3. How are expectations relevant to the effectiveness of the stimulus measures?
4. What is likely to determine the proportion of the $1400 stimulus cheques that people spend?
5. What is the current monetary policy of the Fed? How is it likely to impact on the effectiveness of the fiscal stimulus?
Discretionary fiscal policy writ large: Biden’s stimulus plans
On 10 March, the House of Representatives gave final approval to President Biden’s $1.9tr fiscal stimulus plan (the American Rescue Plan