Let’s see what the “three difficulties with using fiscal policy” look like in real life. Categorize each of the three stories below as either

(1) crowding out, (2) a drop in the bucket, or

(3) a matter of timing.

a. During a recession, the State of New York hires 1,000 new trash collectors. The state legislature in Albany takes six months to pass a law to hire the new trash collectors, and because of government rules and paperwork, the government actually hires the workers 18 months after the recession has begun.

b. During a recession, the State of New York hires 1,000 new trash collectors. Five hundred of the new trash collectors, however, were just people who quit their jobs as restaurant employees in order to take the better-paying trash collector jobs.

c. During a recession, the State of New York hires 1,000 new trash collectors. However, during the course of the recession, 300,000 additional people in New York lose their jobs. mk6