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SIMPLE ANALYTICS OF THE GOVERNMENT EXPENDITURE MULTIPLIER

Outline. This paper explains the key factors that determine the effectiveness of government purchases as a means of increasing output and employment in New Keynesian models, through a series of simple examples that can be solved analytically. Delays in the adjustment of prices or wages can allow for larger multipliersthan exist in the case of fully flexible prices and wages; in a fairly broad class of simple models, the multiplier is 1 in the case that the monetary authority maintains a consta1147

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SIMPLE ANALYTICS OF THE GOVERNMENT EXPENDITURE MULTIPLIER

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