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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- 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_forwardUnder what condition would crowding out not inhibit long-run economic growth? Under what condition would crowding out impede long-run economic growth?arrow_forwardAs you have learned in Unit 8 (this week), monetary and fiscal policy play important roles in economic stimulation and or stabilization. In this regard: Start with a brief introduction that explains use of Government policy to control the economy. When is it appropriate to use monetary and fiscal policy to stimulate or stabilize the economy? Look at both. When is it inappropriate to use monetary and fiscal policy to stimulate or stabilize the economy? Look at both. What specific fiscal policy tools would you use to stimulate aggregate demand and how? What specific monetary policy tools would you use to stimulate aggregate demand and how? What is your conclusion, should policymakers use the monetary and or fiscal policy, or a combination of both, to stimulate aggregate demand? Explain your reasoning.arrow_forward
- Economics Recall our discussion of Ricardian equivalence, which describes how particularly far-sighted individuals respond to tax changes. In class, we talked about how people react to tax cuts under Ricardian equivalence, but let's consider the opposite. If we assume Ricardian equivalence is true, how would people react if the government raises taxes?arrow_forwardDiscuss three reasons why the use of fiscal policy to stabilize the economy is more complicated than suggested by the basic Keynesian model.arrow_forwardEconomic Ricardian equivalence implies that government budget deficits need not crowd out investment spending. True or Falsearrow_forward
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