Author Question: The government's present value budget constraint states that A) taxes must equal government ... (Read 100 times)

stephzh · **on:** Jun 30, 2018

The government's present value budget constraint states that

A) taxes must equal government spending in each period.
B) the present value of government spending must be equal to the present value of consumers' disposable incomes.
C) the present value of government spending must be equal to the present value of taxes.
D) the government may run deficits each and every year, as long as the deficits are sufficiently small.

Question 2

In the New Keynesian open economy model, government spending

A) is an effective stabilization tool with a flexible exchange rate, and an ineffective stabilization tool with a fixed exchange rate
B) is an ineffective stabilization tool with a flexible exchange rate, and an effective stabilization tool with a fixed exchange rate; prices are flexible.
C) is an ineffective stabilization tool with a flexible exchange rate, and an ineffective stabilization tool with a fixed exchange rate; net exports depends on the relative price of foreign goods to domestic goods.
D) is an effective stabilization tool with a flexible exchange rate, and an effective stabilization tool with a fixed exchange rate.