The Ricardian equivalence theorem implies that
A) government debt policy must be handled correctly for the economy to prosper.
B) the amounts of government spending are neutral.
C) an increase in government spending has no effect on the economy, as long as there is an equal change in taxes.
D) the timing of taxes collected by the government is neutral.
Question 2
In the New Keynesian open economy model, suppose the exchange rate is flexible and there is a decline in total factor productivity
A) expansionary fiscal policy is necessary.
B) contractionary monetary policy is necessary.
C) expansionary monetary policy is necessary.
D) no policy intervention is necessary.
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