How Does Fiscal Policy Affect The Economy 1 Why Is This A Difficult Question For St 2847694

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“how does fiscal policy affect the economy”.
1. Why is this a difficult question for statistical studies to answer? For ex-ample, why can’t we just put GDP on the left side of a regression equationand some measure of fiscal policy on the right side, and use the computedregression coefficient as an estimate of the impact of fiscal policy on GDP?
2. What are the main approaches that have been used to overcome thesestatistical difficulties?
3. What answers have these studies provided to the question: “How doesfiscal policy affect the economy”?
4. The paper on the reading list by Ilzetzki, Mendoza and Vegh suggestedthat fiscal multipliers depend upon certain characteristics of the economy.Pick two of these characteristics, describe how they were found to affectthe fiscal multiplier, and give an explanation for the finding.