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Suppose the economy is in recession.

In response, the federal government increases its spending, causing...

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Suppose the economy is in recession.

In response, the federal government increases its spending, causing large budget deficits.
According to the Ricardian Equivalence theorem, how will the deficits affect real GDP, employment, and the price level?
Explain in words and graphs.

Answer

The Ricardian Equivalence theorem states that consumers are "forward-looking" when making decisions on what to buy.
Therefore, according to this theory all of these variables would not change.
The consumer would take this increased spending into account.

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Virtual Teaching Assistant: Colleen R.
Question Level: Basic
Karma: Free
Upload Date: 5/31/2017

This 41 words question was answered by Colleen R. on StudySoup on 5/31/2017. The question contains content related to Business Since its upload, it has received 130 views.

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