Supply,wealth effects,negative multipliers,and stability |
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Authors: | Paul E Smith |
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Institution: | University of Missouri, Columbia, USA |
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Abstract: | This paper is concerned with the Blinder-Solow contention that negative government expenditures multipliers are trivial inasmuch as the resulting equilibrium is unstable in a conventional IS-LM model with constant prices. An aggregate supply side, which features progressive taxation of labor income and a real balances effect in the labor supply equation, is added to the model, and it is shown that negative multipliers are not necessarily inconsistent with local asympototic stability. |
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