Question

2. Why do you suppose that some economists have argued that a key determinant of a nation's stabilization coefficient value is whether its government relies to a greater extent on automatic fiscal stabilizers instead of discretionary policy actions?

Short answer

It is determined that if they both change by 100 percent, the equilibrium GDP is negatively affected, and the multiplier's overall value is negative.

Step-by-step solution

Introduction

The data is about the argument of the Economists about the key determinant of nation's stabilization coefficient value

The objective is to explain the concepts of key determinants involved in the argument.

Step 1

The reciprocal of marginal inclination to save is the Keynesian multiplier (MPS). This encapsulates the government's spending's maximum possible effect on equilibrium GDP.

The impact fiscal multiplier, on the other hand, includes all information on time lags, direct fiscal offsets, and short-term crowding-out effects.

Step 2

Economists employ the cumulative fiscal multiplier to achieve this. This is true for the long run, once all discretionary fiscal policy acts and crowding-out effects on equilibrium GDP have been eliminated.

If they both change by 100 percent, the equilibrium GDP is negatively affected, and the multiplier's overall value is negative.