"In a market-clearing economy, declines in demand from one sector do not cause large declines in aggregatge output because other sectors expand. The key price mediating the response is the interest rate. A decline in the rate stimulates all categories of spending. But in a low-inflation economy,...

One of the important determinants of the response of saving and consumption to the real interest rate is the elasticity of intertemporal substitution. That elasticity can be measured by the response of the rate of change of consumption to changes in the expected real interest rate. A detailed...

During World War II and the Korean War, real GDP grew by about half the amount of the increase in government purchases. With allowance for other factors holding back GDP growth during those wars, the multiplier linking government purchases to GDP may be in the range of 0.7 to 1.0, a range...