Michalis Nikiforos and Gennaro Zezza of the Levy Economics Institute Of Bard College have published their strategic analysis report for the U.S. economy.
They discussion two scenarios — baseline scenario and scenario 1. Growth in either scenario is low. The authors argue that while equity markets have risen in recent times on expectations of a fiscal stimulus, it is unlikely. In scenario 1, it’s assumed that equity markets fall and this leads to a fall in private expenditure relative to income and this causes a fall in growth by 2020 and a rise in the budget deficit to 8.3% because of it.
It looks more likely that the Trump administration isn’t going to relax fiscal policy. Donald Trump had promised in his campaign to reduce taxes for even the middle class but is now saying that it’s dependent on numbers in the Republican healthcare plan.
At any rate, the report has a chart showing how tight fiscal policy has been since the recession. This is how real government expenditure changed after the crisis. The red line is the current recovery (2009Q2-) and other colours are for previous recoveries post recession trough.
Source: Levy Institute
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