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

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