USE GRAPHS WHERE MENTIONED PLEASE 1. In the Statement on Monetary Policy February 2018 (RBA-SMP-2018) the RBA suggests that "Fiscal multipliers estimate the total effect of a change in public investment on GDP, relative to the size of the initial increase in public demand. The Organisation for Economic Co-operation and Development (OECD) estimates that an increase in public infrastructure investment in Australia is associated with a fiscal multiplier of between 1.1 and 1.3 after two years."

Explain, in the context of the simple Keynesian model (draw a graph), the principle of the multiplier effect and then, in the context of the IS-LM model (draw a graph), discuss what factors might affect the size of the fiscal multiplier and the degree of crowding out. If the OECD's estimate is reasonable, what would sort of values would you expect the fiscal multiplier for a change in social welfare spending to take and why?

Useful to this question

https://www.rba.gov.au/publications/smp/2018/feb/box-c-spillovers-from-public-investment.html