Personal incomes fell by 1.3% from May, when they had been boosted by the government's fiscal stimulus.Industrial output in Britain rose by 0.5% in June, helped by a jump in car production.Consumer prices in the euro area fell by 0.6% in the year to July, according to a preliminary estimate.
Will the Obama administration's fiscal stimulus turn output and employment around?
Economic output, fiscal strength and trade performance will all be hit.
The rhetoric may be different but the policies are largely the same.If the unprecedented monetary and fiscal stimulus works, output gaps will eventually close.
A brief growth spurt is expected in Japan in early 2009 thanks to a fiscal stimulus, but output is set to stagnate over the second half of the year.
A recent study by the International Monetary Fund finds large positive multiplier effects of expansionary fiscal policy on output and employment under such circumstances.
So there is no plausible argument on behalf of the claim that fiscal contraction expands output; there is, on the other hand, a very plausible argument to the effect that fiscal contraction doesn't even help the fiscal situation.
The argument runs like this: 1. Fiscal contraction reduces output in the short run; this immediately means that part of the initial gain in terms of a lower deficit is offset by reduced revenue and higher safety-net spending.
