topicWhat lessons does the great recession hold for how fiscal policy should get ready to respond the next economic downturn?  

According to our textbook what are the aims and tool of fiscal policy?  Focus on the short run, but give some consideration to the long run as well.  Do the Brookings institution’s specific suggestions regarding how policy should respond to the next downturn seem to be compatible with Ray Fair’s discussion of fiscal policy?  How do John Taylor’s views differ?

Please remember to clearly explain simple things about the general aims and tools of fiscal policy.  Such as:

What are spending multipliers?

What is the distinction between “active” and “passive” fiscal policy?

(“Passive” fiscal policy is sometimes referred to as the “automatic stabilizer”.)

How should short run fiscal policy relate to the long run budget position?

Then explain a few, in your view important, things about how was fiscal policy conducted in the great recession and why economists have different views on it.


1.     Text chapters 5-9 and section Second half of Chapter 14/15 of Fiscal Policy and Deficits

a.     This is chapter 14 in the twelfth edition and chapter 15 in earlier editions.

2.     Brookings Institution Report: Nine facts about the Great Recession and tools for fighting the next downturn, by Diane Whitmore Schanzenbach, Ryan Nunn, Lauren Bauer, David Boddy, and Greg Nantz,  Monday, May 23, 2016

a.     https://www.brookings.edu/research/nine-facts-about-the-great-recession-and-tools-for-fighting-the-next-downturn/

3.     Taylor, J. B. (2016). “Can We Restart the Recovery All Over Again?” The American Economic Review 106(5): 48-51 http://www.stanford.edu/~johntayl/2016_pdfs/Can_We_Restart+the_Recovery_All_Over_Again-AERMay2016.pdf

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