Expectation in Fiscal policy & Ricardian equivalence. One can argue thatmacroeconomics is essentially a story of a 'journey' from disequilibrium back toequilibrium. The recession caused by Covid that had forced many countries to usefiscal policy to compensate the shock and stimulate the economy is one example ofdisequilibrium. Cited from the Ministry of Finance website, the use of the governmentbudget to mitigate the impact of the Covid crisis was clearly stated: "The state budgetwill continue to work hard to protect the community through Covid 19 handling froma health perspective, especially during the implementation of the EmergencyCommunity Activity Restrictions (PPKM). This refocusing and sharpening ofpriorities is expected to help all communities in various sectors, especially the healthsector, in dealing with Emergency PPKM." (MOF-RI News Index, 7/5/2021).Questions:a. Based on the macro workhorse model, explain the 'journey' (mechanism) how aninitial disequilibrium can revert to equilibrium by using fiscal policy.b. Some argue that in the medium run, the expansionary effect of fiscal stimulusdisappears, bringing the output back to the initial level (the phenomenon of'Ricardian equivalence'). Explain the mechanism of the Ricardian fiscal policy.

The fiscal policy is decided by the government of the country. It means taxes or government…

a. Based on the macro workhorse model, explain the 'journey' (mechanism) how an initial disequilibrium can revert to equilibrium by using fiscal policy. b. Some argue that in the medium run, the expansionary effect of fiscal stimulus disappears, bringing the output back to the initial level (the phenomenon of 'Ricardian equivalence'). Explain the mechanism of the Ricardian fiscal policy.

a. Based on the macro workhorse model, explain the 'journey' (mechanism) how an initial disequilibrium can revert to equilibrium by using fiscal policy. b. Some argue that in the medium run, the expansionary effect of fiscal stimulus disappears, bringing the output back to the initial level (the phenomenon of 'Ricardian equivalence'). Explain the mechanism of the Ricardian fiscal policy.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter24: Fiscal Policy

Section: Chapter Questions

Problem 5P

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