Which of the following statements is correct?
I. A drop in the foreign exchange value of the dollar would decrease aggregate demand
II. A decrease in the amount of money in circulation would increase aggregate demand
A) I only B) II only C) Both I and II D) Neither I nor II
Question 2
According to the Ricardian equivalence theorem, a tax cut that increases the government budget deficit will have
A) a positive effect on aggregate demand because people look at changes in taxes or government spending in the present.
B) no effect on aggregate demand because people only look at changes in taxes or government spending in the present.
C) no effect on aggregate demand because people realize that there will be a future tax liability so that there is no increase in consumption expenditures.
D) an effect on aggregate demand. The magnitude the effect will have depends upon whether the increase is caused by a reduction in taxes or an increase in government spending.
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