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Fiscal Policy in the Crisis

Fiscal Policy in the Crisis. The Keynesian Perspective Multipliers Ricardian Equivalence The Run-up to the Crisis Response to the Crisis Did it work? Was it worth it? The Future of Fiscal Policy Exit Lessons from the Crisis. The Keynesian Multiplier.

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Fiscal Policy in the Crisis

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  1. Fiscal Policy in the Crisis • The Keynesian Perspective • Multipliers • Ricardian Equivalence • The Run-up to the Crisis • Response to the Crisis • Did it work? • Was it worth it? • The Future of Fiscal Policy • Exit • Lessons from the Crisis

  2. The Keynesian Multiplier Y = c (Y – t(Y) – T) + I + G + X – M dY/dG = 1/(1-c+ct) dY/dT= -c/(1-c+ct)

  3. (y1 - t1 - c1) (1 + r) + (y2 - t2 - c2) = 0 (g1 - t1) (1 + r) + (g1 - t2) = 0 __________________________________ (y1 - c1) (1 + r) + (y2 - c2) = t1 (1 + r) + t2 (G) g1 (1 + r) + g2 = t1 (1 + r) – t2 RicardianEquivalence

  4. Run-up to the crisis Debt in percent of GDP Source: OECD Economic Outlook Database.

  5. Position before the crisis, 2007 Source: OECD Economic Outlook Database.

  6. Position after the crisis, 2010 Source: OECD Economic Outlook Database.

  7. Government debt, 2012% of GDP Source: OECD Economic Outlook Database.

  8. Estimated consolidation needs Difference between debt-control and baseline underlying primary surplus % of potential GDP

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