CHAPTER 10

Income and Spending

CHAPTER HIGHLIGHTS
In the most basic model of aggregate demand,
spending determines
output and income, but output and income also determine
particular, consumption depends on income, but increased spending.
In

increases aggregate demand and consumption

therefore output.
Increases in autonomous
one. In other
spending increase output more than one for
words, there is a multiplier effect.
The size of the
multiplier depends on the marginal propensity to
consume and ontax rates.

Increases in government spending increase

therefore tax aggregate demand and
collections. But tax collections rise
increase in by than the
less
governmernt spending, so increased
increases the budget deficit. government spending

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MACROECONOMICS
One of thecentral questions ih macroeconomics is why output fluctuates around is
potenial level. Growth is
highly uneven. In business.cycle booms and recessions, out-.
put rises and falls relaiive to the trend
of potential output. Over the
nave been six la_t 40
recessions, in which output declined relative trend or, as inyears there
2008, fell
drastically-and then recoveries. in which output rose relativeto to trend.
This chapter offers a
first theory of these fluctuations in real output
trend. The cornerstone of
this model is ihe mutual interaction relativeto
spending: between output and
. .* . . Spending.determines output and income, but output and income also deter-
mine spending.
*

The Kemesian model of

income determination that we
very simple; it will be elaborated in develop in this chapter is
later chapters. The central
assume for
the time being that prices do not change at all and simplification is that we
that firms are willing to
sell any
amount of output at the given level of
shown in Chapter 5, is prices. Thus, the aggregate supply curve,
assumed to be entirely flat. This
the aggregat demand
schedule. chaptêr develops the theory of
The key
and
finding in this chapter is thàt because of the feedback between
output, increases in autonomous spending
examplegenerate further increases spending-increased
in
govemment purchases, for
aggregate demand. Other chapters introduce
dynamic links between
spending and output and allow for
changes in prices and interest rates, but offsetting effects due to
omy can be seen elaborations of these more sophisticated models of the
as this chapter's model. econ

10-1
AGGREGATE DEMAND AND EQUILIBRIUM OUTPUT
Aggregate demand is the total amouit of
guishing goods demanded in the
economy. Distin-
among goods demanded for
government (G), and as net
consumption (C), for
investment (/), by the
exports (NX), aggregate demand (AD) is determined
by
AD
C +I+G+ NX
()
Output is at its equilibrium
to the level when the quantity of
output produced is equal
quantity demanded. Thus, an is at economy equilibrium output when
Y =
AD =
C+ I+ G + NX
When aggregate (2)
demand-the amount people want to
is unplanned inventory investment or buy-is equal to
not
disinvestment. We summarize this as output, there
IU Y- AD
where lU is (3)
unplanned additions to
inventory. If output is
demand. there is greater than
unplanned inventory investment, 10>> 0. As aggregate
.ates Tiis üt bäck on' prödúction until excess inventory accumu-
equilibrium. Conversely., if output is belowoutput ànd- aggregatc
aggregate
demand are again in
down until demand, inventories
equilibrium is restored. are drawn

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10-2 THE
CONSUMPTION FUNCTION AND AGGREGATE DEMAND
With
the concept of
equilibrium output firmly defined, we now focus on the dcter
minants of
aggregate demand, and particularly on consumption demand. We focus
on
consumption in part because the consumption sector is so large and in part
because it is easy to see the link between
we omit the
consumption and income. For simplicity.
government and foreign trade, therefore setting both G and NX equal
to zero.
In
practice, the demand for consumption goods is not constant but, rather, increases
with income: Families with higher incomes coosume more than families with lower
incomes, and countries where income is
The
higher have higher levels of total consumption.
relationship between consumption and income is described by the consumption
function.

THE CONSUMPTION FUNCTION

We assume-since it is true-that consumption demand increases with the level of

income
C C+cY C0 0<c<l (4)
This consumption function is shown by the green line in Figure 10-1. The variable C, the
intercept, represents the level of consumption when income is zero. For every dollar
increase in income, the level of
consumption increases by $c. For example, if c is .9, then
for every $1 increase in income,
consumption rises by 90 cents. The slope of the consump-
tion function is c. Along the
consumption function the level of consumption rises with
income. What More Do We Know? 10-1 shows that this
The coefficient c is sufficiently
relationship holds in practice.
important to have a special name, the marginal
propensity to consume (MPC). The marginal propensity to consume is the increase
in consumption per unit increase in income. In our
case, the marginal propensity to
consume is less than 1, which
implies that out of a dollar increase in income, a only
fraction, c, is spent on
consumption.

CONSUMPTION AND SAVING

What happensthe rest of the dollar of income, the fraction

to
(1 c). that is not spent -

on
consumption? If it is not spent, it must be saved. Income is either spent or saved;

Two points neçd to be made about the

consumption tunction, cquation (4). First,
demands are related to the amount of income they have available to spend, that is,individuals consumption
their disposable inconme
YDJ. raher than just to the level of output. However, in this section, where we are
emment and
ignoring the role of gov
foreign trade. disposable income is equal to the level of income and output. Second. the real role
of the intercept is to represent lactors illecting comsumptIon other than
stocks. bonds. and houNes.
income--Wnership of assets. such as

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 200 MACROECONOMICS

AD dD = Y

AD =A + CY

AD

C=C+ cY

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FIGURE10.1 THE CONSUMPTION FUNCTION AND AGGREGATE

DEMAND.

there are no other uses to which it can be put. It follows that

consumption equivalently explaining the behavior of saving. any theory
is
that explains
More formally, look at
equation (5), which states that income not spent on con-
sumption is saved:

S=Y-C. (5)
Equation (5) tells us that, by delinition, saving is equal to income minus
The consumption function in consunption.
call the budget constraint,
equation (4), together with equation (5), which we
implies a savings function. The savings function relates the
level of saving to the level of income.
Substituting the consun1ption
equation (4) into the budget constraint in equation (5) yields the
function
savings function: in
S= Y- C= Y- C- cY -C +(1 = -

c)Y (6)
From equation (6), we see that
saving is
increasing function of the level of income
an
because the marginal
propensity to save (MPS). s=| =c. is positive.
.In other words, aaving increases as income rises.
For instance,
..''. .. suppose the mar
ginal propenaitý-tò consume, c, is 9, meaning that 90 cents out of each extra dollar of
income is consumed. Then the marginal
propensity to save. s, is .I, meaning that the
remaining 10 cents of cach extra dollar of income is saved.
 CHAPIER 10-NCOM AND SPENDING
201

10-1 What More Do We Know?

The Consumption-Income Relationship
he consumption function of equation (4), C =Ct cY, provides a good initial
escription of the consumption-income relationship. Annual per capita consurnption and
disposable personal income data for the United States for the years since 1960 are
plot
Jed in Figure 1. Recall from Chapter 2 that disposable personal income is the amount of
Inçome households have ovailable for either spending or saving after paying taxes and
receiving transfers.
he figure reveals a very close relationship between consumption and disposable
income. The actual
relationship is

C= -1354 +0.97 YD
where Cand YD are each
measured in 2005 dollars per person. Although he relationship
beween ond
consumption disposable income is.,close, not all the points in Figure lie ex
octly on the line. This means that something other than disposoble income is
affecting
Sumption in' any given year. We turn our attention to the other factors determining con
consumption in Chapter 14. Meanwhile it is reassuring that even if equation (4) omits some
important considerations, it fits the real world's consumption-income relationship well.
Total consumption (per copita)
35,000-
08 10
30,000 1 2

25,000 9 29 4

20,000

15,000
64

10,000 - 70
60
62 66

5,000-

0
5,000 10,000 15,000 20,000 25,000 30,000 35,000
Disposable income (per capita)*
"FIGURETRELATIÓN`HIP BETWEEN CONSÚMPTION AND DISPOSABLE INCOME.
****** .

(Source: Bturan of conamic Autlysis: Federnal Reserte lcoomic Date (FRED I|)
202 MACROECONOMICS

ONSUAIPTION, AGGREGATE DEMAND, AND AUTONOMOUS SPENDING

demand, and Ns
Cave Specified one component of aggregate demand, consumption
ink to income. Now we add investment, government spending and taxes. and foreign
rade to our model, but we assume for the moment that cach is aulonomous, that is.

be independent of income.
aetermined outside the model and specifically assumed to
Later chapters consider investment, the govenment, and foreign trade indetail. Here
we just assume that investmentis I. govemment spending is G, taxés are TA, transiers
are TR, and net exports are NX. Consumption now depends on disposable income,
.. * ** *..** **'"******* ** **

*. . ' . ***.*.
YD = Y-"TA + TR (7)
C C+ cYD =
C + c(Y+ TR- TA) (8).
Aggregate demand is the sum of the consumption function, investment, govern
mentspending, and net exports. Continuing to assume that the govermment sector and
foreign trade are exogenous,
AD C+1+ G+ NX
=
C+dY-TA+TR) +*++ N
(9)
-
[C-TA- TR) +*+ +NX] + cY
A+cY
The aggregate demand function, equation (9), is shown in Figure 10-2. Part of
aggregate demand, A =C-TA TR) +*+G+ MX, isindependentofthe level of
income, or autonomous. But aggregate demand also depends on the level ofincome. It
inereases with the level of income because consumption,demand increases with income.
The aggregate demand schedule is obiained by adding (vertically) the demands for con-
sumption, investment, government spending, and net exports at each level of income. At
the income level Y in Figure 10-2, the level of aggregate demand is AD

EQUILIBRIUM INCOME AND OUTPUT

The next step is to use the aggregate demand function; AD, from
Figure 10-2 and equa- .

tion (9) to determine the equilibrium levels of and income.

output
Recall the basic point of this chapter: The equilibrium level of income is such that
aggregate demand equals output (which in turn equals income). The 45° line, AD = Y, .
in Figure 10-2 shows points at which output and aggregate demand are equal. Only at
point E in Figure 10-2, and at the corresponding equilibrium levels of income and out-
put (Y), does aggregate demand exactly equal output. At that level of output and
income, planned spending precisely matches production.
The arrows on the horizontal axis in
Figure 10-2 indicate how the economy feaches
equilibrium. At any income level below Yo. firms find that demand exceeds output and
inventories are declining, and they therefore increase production.
Conversely, for output
levels above Yo firms find inventories piling up and therefore cut As production. the.
We frequently the subscript 0 to denote
use an cquilibriunm level of a väâriable.

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 CHAPIER 10-INCOME AND SPENDING 203

AD

i>0 AD =A+
c

ADO

I+ G+ Nx

C= IC - c(TA TR) + ¢¥
-

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arrows show, this process leads to the output level Y. al which current production
exactly matches planned aggregate spending-and unintended inventory changes (IU) are
therefore equal to zero.

THE FOXMULA FOR EQUILIBRIUM OUTPUT

The determination of equilibrium output in Figure 10-2 can also be expressed algebra
ically by using equation (9) and the equilibrium condition in the goods market, which is
that output is equal to aggregate demand:
Y= AD (10)
The level of aggregate demand, AD, is specified in equation (9). Substituting for
AD in equation (10). we have the equilibrium condition:

Y= A + cY (11)
Since we have Y on both sides of the equilibrium condition in equation (1), we
can collect the terms and solve for the equilibrium level of income andvutput, dengted...
by Y
(12)
204 MACROECONOMICS

Figure 10-2 sheds light on cquation.(1 1). The position of the aggregatle demand
schedule is character/zed by its slope. c (the marginal propensity to consume), and
ntercept. A (autonomous 'spending). Given the intercept. a steeper aggregate demand
functionas would be implied by a higher marginal propensity to consume-implies
2-higher level of equilibrium income. Similarly. for a given marginal propensity to
consume. a higher level of autonomous spending-in terms of Figure 10-2. a larger
intercept-inmplies a higher equilibrium level of income. These rèsults, suggested by
Fgure 10-2. are easily verified using equation (12), the formula for the equilibrium
level of income.
Thus, the equilibrium level of output is
higher the larger the marginal propen
sity to consume, c, and the higher the level of autonomous spending, A.
Equation (12) shows the level of output as a function of the marginal propensity to
consume and autonomous spending. Frequently, we are interested in knowing how a

change in some component of autonomous spending would change output.

from Starting
equation (12), we can relate changes in output to changes in autonomous spending
through
(13)
For example, if the marginal propensity to consume is .9, then 1/(1 - c) = 10, so
a Sl billion increase in
government spending
increases output by
$10 billion, since
the recipients of the increased government spending increase their own spending, tfhe
recipients of that spending increase theirs, and so on. (We investigate the underpin-
nings of equation (13) more thoroughly in Section 10-3.) Note that we can compute
the change in output without specifying the level of output either before or after the
change.

SAVING AND INVESTMENT

There is a useful alternative formulation of the

equilibrium condition that aggregate
demand is equal to output. In
equilibrium. planned imestment equals saving. This con-
dition applies only to an economy in which
there is no government and no foreign trade.
To understand this
relationship. return to Figure 10-2. Without governiment and
foreign trade, the vertical distance between the aggregate demand and
schedules in the consumption
figure is equal to planned investment spending. I.
The equilibrium level of income is found where AD crosses the 45° line, at E.
Accordingly, at the equilibrium level of income, and only at that level, the two vetical
distances are equal. Thus, at the equilibrium level of income,
investment. By contrast. above the
saving
equals (planned)
equilibrium level of income. Y saving (the distance
between the 45° line and the consumption
below Y planned investment exceeds
sehedule) exceeds planned investment. while
The cquality between saving and
saviug.
investment can be seen directly from national
income accounting. Since income is either
ment and foreign trade.
spent ör sävéd."r=°C ¥S. Withour góvem-***
aggregate demand equals consumption plus investment.
Y= C+ I. Puttinge the two together. we have C + S = C+
I. or S
= I.
 CHAPTER 10.|NCOME AND SPE IDI IG 205

We inclyde govemment and forcign tradc in the analysis, We get a morc com-
picte picture reJating
investment to saving and also to net cxpots. Now incone can
Cuner be spent, saved,. or inpaid taxes, so Y =C+ S+: TA -

TR and complete aggre-

gate denand is Y =
C +1+ G+ WX. Therefore,
C+1+G + NX. = C+S+ TA - TR
I S + (TA - TR - G)- NX
14)
hat is,
investment equals private savings (S) plus the government budget
(TA surplus
TR- G) minus net cxports (NX ), or plus nct imports if you preter.
-

Rather than
a "corn
using algebra, some people prefcr to think of equation (14) in terms of
economy:" Investment is the leftover com that will be planted for next year's
crop. The sources of corm
investment are con saved by individuals, any corn left
Irom
govermment over
tax collections net of government spending. and any net corn
from abroad. imported

10-3
THE MULTIPLIER
In this section
we develop an answer to the following question: By how much does a SI
increase in autonomous
to be a
spending raise the equilibrium level of income? There appears
simple answer. Since, in equilibrium,
seem that a $I increase in (autonomous)
income equals aggregate.demand it would
income by SI. That answer is wrong. Let demand spending should raise
or
us now see
equilibrium
why.
Suppose first that output increased by-&B to match the
mous spending. This increase in output and income would increased level ofto autono-
induced spending in.turn- give-rise- further
as.consumption
much of the initial $l
rises because the level
of income has risen. How
increase in income would be spent on consumption? Out of an
additional dollar of income, a fraction c is consumed. Assume,
increases further to meet this then, that production
induced expenditure, that is, that output and thus income
increase by 1 tc.That will still leave us with an excess demand, because the
in production and
income by 1 t c will give rise to further induccd expansion
could clearly take a
long time to tell. Does the spending. This story
In Table 10-I process have an end?
we lay out the steps in the chain
increase in autonomous spending, AA. Next, carelully.
more
off with an [The first round starts
duction to meet exactly that
we
allow an
expansion in pro-
increase in demand. Production accordingly
AA. This increase in production gives expands by
via the
rise to an equal increase in income and, theretfore.
marginal propensity to consume,
expenditures of size cAA. Assume again cgives rise in the second round to increased
that production
in
spending.. The production adjustment this time i_ cAA, expands to meet this increase
and so is the increase in
income.This pives ise to athird round of induced
pensity to consume times the increase in income, speuding cqual to the marginal pro-
e(edA) c*SA. Since the marginal
=

propensity to consumc, c. is less than I, the term - is

less than c. and therefore
expenditures in the third round are smaller than induced
those in the second round.

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206 MACROECONOMICS
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INCREASE IN TOTAL INCREASE

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cAA cAA (1 + c)J
caA cAA (1 +ctc*)AA
4
AA c'A (1 tc+ c + c)AA

Af we write out the successive rounds of increased spending, starting with the ini-
tial inerease in autonomous demand, we obtain

AAD AA + cAA + c2AA + c°AA + ...

=
AA(1 +c+c2+cd + ...)
(15)
For a value of c <1, the successive terms in the series become progressively smaller. In
fact, we are dealing with a geometric series, so the equation simplifies to

AAD
A =AY, (16)
From equation (16), therefore, we find that the cumulative
change in aggregate
spending is equal to a multiple of the increase in autonomous
spending-just as we
deduced from equation (12). The multiple 1/(1 - c) is called the multiplier." The
multiplier is the amount by which equilibrium output changes when autonomous
aggregate demand increases by I unit)
(The concept of the multiplier is sufficiently important to create new notation. The
general definition of the multiplier is AY/AA, the change.in equilibrium output when
autonomous demand increases by I
unit.n this specific case, omitting the government
sector and foreign trade, we define the
multiplier as a, where
am (17)
Inspection of the multiplier in equation (17) shows that the larger the
marginal
propensity to consume, the larger the multiplier. For a marginal propensity to consume
of .6, the multiplier is 2.5; for a
marginal propensity to consume of 8, the multiplier
is 5. This is because a high
marginal propensity to consume implies that a larger fraction
of an additional dolar of income will be
consumed, and thus added to aggregate
demand, thereby causing a larger induced increase in demand.)
Table i)-I and eguation (16) derive tihe * * * * * * '*.. *.'.. ..'
Table i0-l and equation (16) derive the .

multiplier using the mathematics of geometric series. If yoi are fa

miliar with calculus, you will realize that the
multiplier is nothing other than the derivative of
level of income. Y in equation (12) the equilibrium
with respect to autonomous
spending.
 CHAPTLR 10°NCOMi AtND SPH DIN G 207

AD = Y.

AD
AD'=A'+ cY

AA
A D = A+ c¥

AA P .
e s h w a rPi
to Cop

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FMGURE 10-3 DERIVATION OF THE MULTIPLIER.

Why focus on the multiplier The reason is that we are developing an explanation
of fuctuations in output. The multiplier suggests that output changes when autonomous
spending (including investment) changes and that the change in output can be larger
than the change in autonomous spending/The multiplier is the formal way of describing
a commonsense If the economy for some reason-for example, a loss in
idea confi
dence that Teduces investment spending-experiences a shock that reduces income.
people whose incomes have gone dowm will spend less, thereby driving equilibrium
income down even further. The multiplier is therefore potentially part of the explanation
of why output fluctuates.)

THE MULTIPLIER IN PICTURES

Figure 10-3 provides a graphical interpretation of the effects of an increase in autono-

mous spending on the equilibrium level of income. The initial equikbrium is at point E.
with an income level Yq. Now autonomous spending increases from A to A'. This is

WARNING. The tem "muliplier is used more generally in economics to mean the effect
* * . *endogenous
on *some
variable (a variable whose level is explained by the theory being studied) of a unit change in. an *
exogenous ***
vari- **. ********

able (a variable whose level is not detemined within the theory

being exanmined). For instance. one can talk of the
muliplier for a change in the money supply on the leyel of unemploynnent. However, the classic use of the tem is
as we are using it here-the effects of a change in autonomous spending on
equilibrium output.
208
MACROECONOMICS
Tepresented by a parallel upward shift of the aggregate demand schedule to AD. The
upward shift means'that now, at each level of income; aggregate demand is higher by
amount A = A' A. an
Aggregte demand now exceeds-the initial level
of output, Yo Consequentdy.
nventories begin to run down. Firms will respond to the incrcase in demand and declin-
ng inventorics
by
expanding
production gives rise to inducedproduction, say. income level Y'. This expansion in
to

At the same
time, the
expenditure, increasing aggregate demand to level Ad
to the expansion reduces the gap between aggregate demand and
vertical distance FG. The output
marginal propensity to consumégap between demand and output is reduced because the
is less than 1.
Thus, with marginal
in
output will
propensity toconsume less than
unity, a sufficient expansion
restore the balance
the between aggregate demand and
new
equilibrium is indicated
by point E', and the output. In Figure 10-3
Yo The change in income
required therefore
is corresponding level of income is
The
magnitude of the income change AY,%=to Yo-Yo
two factors. The required restore equilibrium depends on
larger the increase in autonomous
by the parallel shift in the spending, represented in Figure 10-3
Furthermore, the larger theaggregate demand schedule, the larger the income change.
aggregate demand marginal propensity to consume--that is, the
schedule-the larger the income steeper the
change.
RECAP

There are three

points to remember from this discussion of the
Anincrease in autonomous multiplier
The increase in
income is
spending raises the equilibrium level of
a
multiple of the increase income.
The larger the in autonomous
from the relationmarginal propensity to consume, the spendinS
between larger the multiplier arising
consumption and income.
THE MULTIPLIER IN PRACTICE
It's not often that
the nightly TVarguments about the
broadcasts, but at themagnitude ofmacrocconomic
on of
disagreements about the size of the fiscalbeginning the first Obamaparameters end up
response to the economic crisis. the policy multiplier ended up inadministration.
the news. In
ulus that is,
package. administration wanted (and
effect. that is, that the Proponents argued that the fiscal stimulusgot) a
large fiscal stim-
while. multiplier is large, so that the increased would have a
large
Opponents
would come about. argued that the spending
muliplier small, claiming that not
is would be worth-
much stimulation
We've written the
multiplier as While this
standard expository device, formulation of the
also used the quite few important
a multiplier is the
"
examplec 9, implying the
ce roümd 'humber.
=
complications left for later. We
are
bat yoú'
ahoutd be
not
muliplier eqüals 10. That example gave
The right valuc left with the impression that 10 is
number for the a
too high. What
multiplier. depends on the circumstance. but realistic a
are the other
factors that we ll be 10 is
exploring? clearly
 CHAPTER 10«/NCOME AND SPENDItNG 209

irst. the multiplier dèpends on tax rates as well as the marginal propensity to
Consume. We'll explore why the presence of taxes reduces the multiplier in the next sec-
tion of this
chapter. We go into muich more detail on the consumption function in
Chapter 14, where we'l discuss why the marginal propensity to consumé differs accord-
ng to whether changes in fiscal policy are perceived to be temporary or permanent.
n
Chapter 11, we'll bring interest rates into the piçture. Increases in government pur
Chases and con_umption can push up interest rates, therebý reducing investment.. This
makes the effective mulipher smaller than the muliplier when only consumption is
considered. However, during the Great Recession, the Fed held interest rates constant,
So this potential offset to the simple multiplier model didn't matter during the crisis.

The really big issue affecting the multiplier is one you already know about: the
Slope of the aggregate supply curve. When we study the multiplier, we are asking how
much aggregate demand moves out. The change in GDP depends both on the movement
of the
aggregate demand curve and the slope of the aggregate supply curve. (You may
want to review Section 5-4.) During the Great Recession, the aggregate supply curve
was
arguably
quite Aat. Thismeans
that the aggregate demand multiplier chapter
pretty much determined the-effect of government spending on output, but under more
ofthis
prosperous economic conditions, this might be much less true.
Economists have devoted considerable effort to estimating the multiplier since its
Size is so important for making fiscal policy: These topics are investigated in depth in
laterchapters. Afl things considered, one empirical estimate, due to Stànford Universi
y's Robert Hall, is that in practice the multiplier is around 1.7. Valerie Ramey, of the
University of Califormia, San Diego, puts the estimate as being somewhat smaller. in the
73
range of.8 to 1.5

10-4
THE GOVERNMENT SECTOR
Whenever there is a recession, people expect and demand that the government do aome
thing about it. What can the government do with respect to aggregate demand? The
government directly affects the level of cquilibrium income in two separate ways. First.
government purchases of goods and services, G. are a component of aggregate demand.

For an argument th:t mulkipliers do not differ much between good and bad tinmes. see Michael T. Owyang.
Valerie A. Ramey, and Sarah Zubairy."Are Governnient Spending Multipliers Greater During Periods of
Slack? Evidence irom the 20th Ceñtury Historical Data." Federal Reserve Bank of St. Louis Working Paper
2013-004A.
Robert E. Hall. "On the Governmet Purch:tses Muliptier." Brookings Papers on Economic Activity. Fall
2009.
Valerie A Ramey. "Can Govenment Purchases Stumulite the Economy? Juurnal of Economic Literulture.
*.*******.*"****",'*"**. . ..
September 2011 '. .************ ****
For a more advanced look at why dhis number is hard to pin downthe answer in part beung we don't have
much experience with episodes as bad as the Great Recession-see Jonathan A. Pauker. "On Measuring the
Eitects of Fical Policy in Recessions." Journal ofEcmomic Liteväture. September 201