This paper by Michael Woodford explores the effectiveness of government spending as a means to stimulate output and employment in New Keynesian models. Through a series of analytical examples, Woodford examines how delays in price and wage adjustments can lead to larger multipliers compared to fully flexible prices and wages. In a broad class of models, the multiplier is 1 when the monetary authority maintains a constant real interest rate path. However, if the monetary authority raises real interest rates in response to fiscal stimulus, the multiplier can be significantly smaller. The paper also discusses the implications of the zero lower bound on nominal interest rates, suggesting that fiscal expansion can be particularly effective when monetary policy is constrained by this boundary. The analysis highlights the importance of considering the dynamics of wage and price adjustments, as well as the role of monetary policy in maintaining a constant real interest rate. The paper concludes by summarizing the key findings and their implications for economic policy.This paper by Michael Woodford explores the effectiveness of government spending as a means to stimulate output and employment in New Keynesian models. Through a series of analytical examples, Woodford examines how delays in price and wage adjustments can lead to larger multipliers compared to fully flexible prices and wages. In a broad class of models, the multiplier is 1 when the monetary authority maintains a constant real interest rate path. However, if the monetary authority raises real interest rates in response to fiscal stimulus, the multiplier can be significantly smaller. The paper also discusses the implications of the zero lower bound on nominal interest rates, suggesting that fiscal expansion can be particularly effective when monetary policy is constrained by this boundary. The analysis highlights the importance of considering the dynamics of wage and price adjustments, as well as the role of monetary policy in maintaining a constant real interest rate. The paper concludes by summarizing the key findings and their implications for economic policy.