The impact of economic stimulus targeted to income groups: a modification of the fair model

Abstract

The most effective way of stimulating the economy, with the goal of accelerating the recovery from a recession, is the subject of much debate. In this thesis, I modify a macro-economic model developed by Ray Fair. My modifications allow the model to forecast how economic stimulus in the form of transfer payments to households will impact the economy if the stimulus payments are targeted at low, middle, or high income households. The model predicts that stimulus targeted at low income households will result in a faster decrease in the unemployment rate and a higher GDP growth rate than economic stimulus targeted at middle and high income households.