By J. O. N. Perkins (auth.)
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Extra info for A General Approach to Macroeconomic Policy
The models give widely differing results about the ranking of the other measures in terms of their effects on nominal earnings. 25 *For Italy this measure has no upward effect on employment- so that, given the upward effect on prices, this figure would be undefined. 1. least inflationary (and likely to provide the most reliable stimulus), with government outlays being intermediate in these respects between the other two. 45 Stimulus Cut in VAT* Average of the four models * With interest rates held constant.
The use made of these results for the purpose of discussion of policy issues relates, however, primarily to the direction and the ranking of the effects of the various instruments on the different objectives; and the precise numerical value of these effects is not intended to be used for drawing any more exact conclusions. But it appears permissible to use these results partly as an illustration of the principles involved, and also to suggest conclusions about the directions of change in the various instruments that are most likely to contribute towards dealing with a given combination of macroeconomic problems.
5 of a unit; so that, taking the effects of both measures together, there would be a net stimulus to real output without a net rise in prices. A slightly greater reduction in government outlays would thus make it possible to reduce prices while raising real output. 3. 5 of a unit but less than one unit can be combined with a tax cut that raises output by one unit, to give both a net rise in output and downward pressure on prices. It should be observed that if the government were unwise enough to try to raise tax rates with the aim of checking inflation, while also increasing government outlays, with the intention of thereby reducing unemployment) for any given rate of increase in prices, or both reduce at any given level of real output, or reduce output (increase unemployment) for any given rate of increase in prices, or both reduce real output (make unemployment worse) and increase the upward pressure on prices.