1. Econ 208 Marek Kapicka Lecture 6 The Effects of Gov’t Spending

2. B2) The Effects of Government Spending Extension#2: Monopolistic Competition

4. B2) The Effects of Government Spending Frictions

5. B1) The Effects of Government Spending Equilibrium Conditions

6. B2) The Effects of Government Spending Frictions

8. Final good producer has a CES production function Intermediate good producers:

9. B2) The Effects of Government Spending Frictions

10. Final good producer Intermediate good producers:

11. B2) The Effects of Government Spending Frictions Final good producer demands: Fixed intermediate good producers: Flexible intermediate good producers

12. B2) The Effects of Government Spending Frictions

13. Results from a world with frictions If prices are sticky and the monetary policy reacts to increased government spending by producing some inflation, the fiscal multiplier is larger If monetary policy maintains constant price level then the fiscal multiplier is the same as before

14. Empirical Evidence Main question: How does consumption and wages respond to an increase in government spending? Valerie Ramey (2008): The effects of military expenditures Largely unrelated to other economic factors

15. Real Government Spending Per Capita

16. The effects on GDP

17. The Effects on Consumption and Wages