The current market rate of interest is 10 percent. At that rate of interest, businesses borrow $300 billion per year for investment and consumers borrow $50 billion per year to finance purchases. The government is currently borrowing $150 billion per year to cover its budget deficit. d. Do you think the Ricardian Equivalence is realistic?

The current market rate of interest is 10 percent. At that rate of interest, businesses borrow $300 billion per year for investment and consumers borrow $50 billion per year to finance purchases. The government is currently borrowing $150 billion per year to cover its budget deficit. d. Do you think the Ricardian Equivalence is realistic?

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter16: Budget Deficits In The Short And Long Run

Section: Chapter Questions

Problem 2TY

See similar textbooks

Similar questions

What is the theory of Ricardian equivalence?
The current market rate of interest is 10 percent. At that rate of interest, businesses borrow $300 billion per year for investment and consumers borrow $50 billion per year to finance purchases. The government is currently borrowing $150 billion per year to cover its budget deficit.c. How would your conclusion differ if taxpayers fully anticipate future tax increases to offset the increase in the budget deficit?d. Do you think the Ricardian Equivalence is realistic?
Explain the concept of Ricardian Equivalence. Do you believe it holds in practice? Why or why not? Explain.
If Ricardian equivalence is true, and the government raises taxes(holding spending constant), how does the average person’s behaviorchange? In other words, how does he or she react to a tax increase?
Ricardian equivalence: Suppose that the government fears the economy mightbe heading into a recession and decides to cut income taxes today in an efortto prevent the recession.
11) If the Ricardian equivalence proposition is correct, then A) deficits harm future generations. B) deficits reduce investment spending. C) deficits stimulate the economy in the short run. D) all of the above E) none of the above
In an attempt to reduce the large budget deficit, the government raised taxes and reduced government expenditure but unemployment soared and the budget deficit actually increased. A leading economist remarked: 'The time to attempt to reduce the deficit is when the economy is at overfull employment. Then policies designed to reduce the deficit will not only work but they will also achieve other desirable macroeconomic goals.' Do you agree with the economist? Why or why not? Plz do fast asap
Does Ricardian equivalence imply that changes in the timing of government expenditure have no effect on the economy? Explain.
Using examples and clearly labelled graphs where applicable answer the following question: Explain the concept of Ricardian Equivalence. Do you believe it holds in practice? Why or why not? Explain.
Explain whether or not you agree with the premise of the Ricardian equivalence theory that rational people might reason: “Well, a higher budget deficit (surplus) means that I’m just going to owe more (less) taxes in the future to pay off all that government borrowing, so I’ll start saving (spending) now.” Why or why not?
A fiscal Policy that seeks to promote stability and economic growth through tax cuts is?a) Restrictive Fiscal Policyb) Easy Money Policyc) Tight Money Policyd) Expansionary Fiscal Policy
True/False 1) Unemploymen benefits are an example of fiscal policy.2) According to Ricardian Equivalence in a strict sense, the tax multiplier is zero.3) When looking at the GDP data from quarter 3 of 2012, government purchases accounted for a larger share of the economy than investment expenditures did.4) According to one of the lectures featuring a pie chart on federal government expenditures, transfer payments went from about 25% of total expenditures in the 1960s to over 46% of total expenditures in 2010.5) As of 2010, interest payments on the federal debt exceeded 10% of totalexpenditures.6) We argued that the tax revenue that the federal government collects ispro-cyclical, that is, when economic activity is growing so is taxrevenue. An example of this is the new economy when tax revenue increased along with the economic growth.7) If aggregate expenditures exceed aggregate income then inventories will rise and firms will eventually lay off workers.8) We argued that cutting the…