Author Question: Ricardian equivalence suggests that government budget deficits generated by decreases in current ... (Read 46 times)

Cooldude101 · **on:** Jun 30, 2018

Ricardian equivalence suggests that government budget deficits generated by decreases in current taxes

A) increase the current account surplus.
B) decrease the current account surplus.
C) have no effect on the current account surplus.
D) have unpredictable effects on the current account surplus.

Question 2

The domestic real interest rate (r) for a given country must be the same as the world real interest rate (rw) ________.

A) if perfect capital mobility is assumed
B) because with no barriers to capital flows, if rw > r domestic residents would just borrow abroad putting upward pressures on the domestic rate until both rates equal each other
C) because with no barriers to capital flows, if rw < r domestic residents would only lend to foreigners putting downward pressures on the domestic rate until both rates equal each other
D) all of the above
E) none of the above