Macroeconomics
10th Edition
ISBN: 9780134896441
Author: ABEL, Andrew B., BERNANKE, Ben, CROUSHORE, Dean Darrell
Publisher: PEARSON
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Chapter 15, Problem 9RQ
To determine
The four reasons that the Ricardian equivalence proposition likely to hold.
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Explain the concept of Ricardian Equivalence. Do you believe it holds in practice? Why or why not? Explain.
Illustrate the concept of Ricardian equivalence using the demand and supply of financial capital graph.
In what ways is the government debt a potential burden on future generations? What is the relationship between ricardian equivalence and the idea that government debt is a burden?
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- 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.arrow_forwardEconomic Ricardian equivalence implies that government budget deficits need not crowd out investment spending. True or Falsearrow_forwardTrue or false? A fiscal policy is ineffective in a situation of perfect mobility of capital.arrow_forward
- What is Ricardian equivalence? Give at least three reasons Ricardian equivalence mightnot correctly describe an economy.arrow_forwardIf government policy makers were worried about the inflationary potential of the economy, which of the following would be a correct fiscal policy change?arrow_forwardExplain how governments need to recognise the impact of several time lags as a problem in fiscal policy design.arrow_forward
- What steps can be taken to maintain the effectiveness of the command-and-control approach in a political environment of fiscal restraint?arrow_forwardRicardian equivalence implies that government budget deficits need not crowd out investment spending. True or Falsearrow_forwardDetermine whether the cases below are examples of either expansionary fiscal policy, contractionary fiscal policy, expansionary monetary policy, or contractionary monetary policy and explain why.arrow_forward
- 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?arrow_forwardWhich of the following economic schools of thought promote the use of fiscal policies to stimulate spending during periods of recession * Monetarists Keynesians Classical Supply-side economicsarrow_forwardWhich of the following is an example of an automatic stabilizer? When the economy goes into a recession,… a.More people become eligible for unemployment insurance benefits. b.Stock prices decline, particularly for firms in cyclical industries. c.Congress begins hearings about a possible stimulus package. d.The Federal Reserve changes its target for the federal funds rate. Reason why B, C, D are wrong?arrow_forward
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