Government Expenditure Determination and the Multiplier- Accelerator Principal

In this paper we adopt the analysis of Karpetis C. & Varelas E. (2005), in the context of which the time paths of real income, actual and expected infl ation are determined. Considering the model’s parameters values and initial conditions known a priori, we determine both the amplitude of oscillation in the cases of real income, actual and expected infl ation and a formula, which could be adopted by the Government to defi ne the level of its expenditure in a manner that infl ation’s amplitude of oscillation will be minimized. Performing a simulation analysis we investigate the effects on the amplitude of oscillation in the case of income, actual and expected infl ation, when the level of government expenditure is set not exogenously but endogenously using specifi c formulas determined in our analysis.