Consider an economy in which equivalence does hold. Suppose the government start
ID: 1210755 • Letter: C
Question
Consider an economy in which equivalence does hold. Suppose the government starts with a balanced budget. Then there is an increasing in government change is taxes. Save more increase by only the amount of the change in G. Save less increase by only the amount of the change in G. save more, decreases by the amount of the change in G. Save less, increase by more than the amount of the change in G None of the above statements are correct. IF Ricardian equivalent did nor hold, coper would increases by all other things equal more the same amount less The energy chance current be determined in this case.Explanation / Answer
1. C) save more, decrease by the amoun of the change in G.
Under Ricardian equivalence, consumers are forward looking so when government increases its spending then people start saving more.
2. B) the same amount