The government of a small open economy announces a tax cut of $100 this year, combined with a tax increase of $110 next year, when the interest rate is 10%
What are the effects of this change on the world real interest rate, national saving, investment, and the current account balance in equilibrium when (a) Ricardian equivalence holds? (b) Ricardian equivalence does not hold?
(a) No effect on any of the variables.
(b) Real world interest rate unchanged, national saving declines (private saving rises, but not as much as government saving declines), investment is unchanged, and the current account balance declines.
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The demand for a good is inelastic with respect to price if the price elasticity of demand is:
A. less than one. B. greater than one. C. equal to one. D. equal to negative one.
Consumer?producer rivalry occurs because of:
A. producers' high production cost and consumers' low valuation of a good. B. consumers' high valuation and producers' low production cost of a good. C. the competing interests of consumers and producers. D. None of the statements associated with this question are correct.
For a given benefit, a rational person chooses the option that has:
A. the average opportunity cost. B. the highest opportunity cost. C. the lowest opportunity cost. D. no opportunity cost.
Suppose that a city's energy demand is 30 megawatts during off-peak times and 40 megawatts at its peak. The city has been purchasing electricity from an outside company but has decided to build its own power plants to satisfy all of its energy demand. The city can choose to build one or more plants to generate the needed electricity. There are three types of plant: coal, natural gas, and hydroelectric. The three types of plants face the costs appearing in the table. Assuming the city's power needs will not change in the foreseeable future, to achieve the lowest cost of power generation, the city should build:
A. two coal-fired plants.
B. two natural gas plants.
C. one coal-fired and one hydroelectric plant.
D. four hydroelectric plants.