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  • Estimated Impact of the American Recovery and Reinvestment Act on Employment and Economic Output from January 2012 Through March 2012

    May 25, 2012
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Assessing the Short-Term Effects on Output of Changes in Federal Fiscal Policies: Working Paper 2012-08

working paper

May 25, 2012

read complete document  (pdf, 144 kb)

Felix Reichling and Charles Whalen


Abstract

Changes in federal fiscal policies can have both short-term and long-term effects on output. The Congressional Budget Office’s analysis of the short-term effects focuses on the impact on the demand for goods and services. That impact can be decomposed into direct effects and indirect effects: Direct effects consist of changes in purchases of goods and services by federal agencies and by the people and organizations who are recipients of federal payments or payers of federal taxes; indirect effects enhance or offset the direct effects. The indirect effects can be summarized by a demand multiplier, defined as the total change in gross domestic product per dollar of direct effect on demand. This paper presents the ranges of demand multipliers that CBO uses in its analyses and reviews evidence on the size of those multipliers.

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