Fiscal policy in liquidity trap: Stimulate demand, not supply, for growth!
The article explores how government spending affects the economy in different situations. It looks at models with flexible prices and models with rigidities. In some cases, when interest rates are very low, increasing government spending can boost the economy more than cutting taxes. This is especially true when the economy is in a liquidity trap. In this situation, stimulating demand is more effective than stimulating supply. The article suggests that in Russia, fiscal policy should focus on boosting demand to help the economy grow.