Answer Happy

Briefly explain whether each of the following statements is true or false. 1. An increase in government expenditure financed by borrowing (running a larger budget deficit) necessarily leads GDP to rise by more than the increase in gov- ernment expenditure according to the IS-LM model. 2. The Ricardian equivalence proposition implies that a deficit-financed tax cut will have no effect on national saving. 3. In the Solow model, it is possible that a higher saving rate can reduce consump- tion in both the short run and the long run. 4. Higher transaction costs increase the demand for money according to the Baumol- Tobin model. 5. If the demand for money is perfectly interest elastic then expansionary mone- tary policy will be effective in raising GDP according to the IS-LM model.