Thursday, March 5, 2009

Mankiw on Fiscal Multipliers

Greg Mankiw highlights the debate about whether fiscal stimulus multipliers are large or small.
He's explained elsewhere that marginal propensity to consume (MPC) increases (in contrast to average propensity to consume) during times of uncertainty. Therefore, he tends to agree with the Obama administration that fiscal multipliers will be "larger than normal as well".

I wonder if his MPC argument applies to dollars themselves. That is, during times of uncertainty, are consumers more likely to spend the spare change or drop it in a jar at home? In light of the Bloomberg report that the FDIC might run out of money this year, I wonder where consumers are putting their marginal dollars. Are they putting them in Bank of America or their mattress?

Update: Congress is considering a loan to the FDIC.

No comments: