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Fiscal Policy in an Imperfectly Competitive Macroeconomy with Nominally Rigid Unemployment Benefit

John Fender and Chong Yip

The Manchester School of Economic & Social Studies, 1995, vol. 63, issue 3, 257-73

Abstract: The authors consider fiscal policy in an imperfectly competitive macroeconomy where money is nonneutral; an assumption of nominally rigid unemployment benefit is used to generate the nonneutrality. Wages are set by maximizing trade unions. Although expansionary monetary policy does raise output and welfare in such a framework, the government expenditure multiplier is always less than unity and may be negative. Welfare may decline even if an expansion of government spending raises output and employment. Copyright 1995 by Blackwell Publishers Ltd and The Victoria University of Manchester

Date: 1995
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