Briefly explain whether each of the following statements is true or false. 1. An increase in government expenditure fina
Posted: Thu May 26, 2022 7:31 am
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.
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.