intermediate macro, see file. dynamic consumption theory, credit market, credit market imperfection,...

Question

intermediate macro, see file. dynamic consumption theory, credit market, credit market imperfection, Ricardian equivalence

Kushal · Accepted Answer

1. Timing of the expenditures have changed. 
a. 
i. The proposal seems to be working on the assumptions that the inflation measures, the yields of the economies and the discount rate remains the same.
ii. However, this assumptions, as witnessed in the past are not full proof and there have been instances where the discount rate have significantly changed leading to the present value of the expenditures being different.
iii. Consumer’s flexible labour supply does affect this due to the change in this labour supply will adversely impact the discount rate.
b. Timing of the financing of expenditures and timing of the expenditures.
i. Based on the Ricardian’s equivalence theorem, the financing of the expenditures, in the other words tax now or tax later is neutral.
ii. If the financing has been done through extra debt that means to repay that loan government will have to borrow and repay that amount later.
iii.

intermediate macro, see file. dynamic consumption theory, credit market, credit market imperfection, Ricardian equivalence

Solution

Answer To This Question Is Available To Download

Related Questions & Answers

Submit New Assignment