Macroeconomic equilibriums, crises, and fiscal policy
Fiscal policy plays an important role in alleviating the costs of the crisis. However, recent experiences suggest that the public finances often are unprepared for a crisis. Deficits and debt levels prior to the crisis are commonly too high, limiting the government’s ability to support the economy through the crisis and the recovery phase. In this paper, I argue that theoretical macroeconomic modeMacroeconomic crises are common as well as economically, socially and politically costly. Fiscal policy plays an important role in alleviating the costs of the crisis. However, recent experiences suggest that the public finances are often unprepared for a crisis. Deficits and debt levels prior to the crisis are commonly too high, limiting the government’s ability to support the economy through the
