The Keynesian multiplier effect is reinterpreted and several issues that may have misled assessments of the effect of fiscal spending are discussed. It is shown that even in the textbook Keynesian framework some transfer policy ‘reduces’ aggregate demand and that public works spending may...

Although the Keynesian multiplier effect of public works is criticized for lack of a microeconomic foundation, it is still taught in most undergraduate courses and believed to be useful for policy makers. However, it has a serious fallacy even if we accept the consumption function. This note...