There is currently a political and academic controversy whether or not stimulus packages against the Covid-induced economic recession will cause inflation. Professor Olivier Blanchard has warned that the stimulus package of the US-administration may lead to inflation in the US. However, he does not see inflation dangers emanating from stimulus programs in the Eurozone. The Next Generation EU program is not only considered to be a stimulus program but also to be a growth program, which by spending on infrastructure and climate-related investments is expected to lead to an increase in potential output. Analyze in an AD-AS model the impact of economic growth on actual GDP and the price level. Also elaborate on the role that an additional demand stimulus could play.
There is currently a political and academic controversy whether or not stimulus packages
against the Covid-induced economic recession will cause inflation. Professor Olivier
Blanchard has warned that the stimulus package of the US-administration may lead to
inflation in the US. However, he does not see inflation dangers emanating from stimulus
programs in the Eurozone.
The Next Generation EU program is not only considered to be a stimulus program but also to
be a growth program, which by spending on infrastructure and climate-related investments
is expected to lead to an increase in potential output.
Analyze in an AD-AS model the impact of
level. Also elaborate on the role that an additional demand stimulus could play.
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