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Debt multiplier boosts economy during recession, challenges fiscal consolidation efforts.

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The Debt Multiplier
Alice Albonico, Guido Ascari, Alessandro Gobbi

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The debt multiplier shows how changes in government debt affect the economy. In a model with different generations, increasing debt can boost output temporarily, especially when interest rates are low. This suggests that cutting spending during a recession might not be the best idea. Also, having higher debt levels in the long run can lead to higher interest rates, giving more room for monetary policy to tackle economic downturns.