Answer whether or note the following statements are true, false or uncertain. Justify your answers. 1....

Answer whether or note the following statements are true, false or uncertain. Justify your answers.

1. The Lucas critique argues that the simple Keynesian multiplier model cannot be used to evaluate the potential impact of policy because the model’s assumption of a representative agent is too simple to capture the real world.

2. Ricardian Equivalence implies that the government’s fiscal policy does not matter.

Solutions

Expert Solution

True

As per the argument, it is true that households don’t consume simply as explained by the Keynesian economic proposals as there are different government policy variables, structural factors of the economy as well as the technological factors also affect the consumption pattern that is different to the multiplier effect as calculated by using the data of government spending or tax cut and MPC. The real world scenario faces different challenges. Inside and outside lags as well as crowding out effects are also not considered in the Keynesian proposal, but takes place in the real world. So, the argument given is correct.

True

As per the Ricardian Equivalence, the increase in government spending (as a part of the fiscal policy) will be followed by a decrease in government spending. Further, the consumers also expect that decreased level of tax cut, will follow the increase in the tax in the future. It will give consumers a feeling that lifetime income will not change. As a result, the consumer spending or consumption will not increase even if the fiscal policy is in place. So, as per the Ricardian Equivalence, fiscal policy will not be effective.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

1. Are the following statements True, False or Uncertain? Justify you answer for each of the...

1. Are the following statements True, False or Uncertain? Justify you answer for each of the statements. You need to explain in detail a) An increase in saving rate increase long run growth in the Solow model. b) Expectation Augment Phillips Curve can explain both high inflation and unemployment together c) In an open Economy, Expansionary fiscal policy abroad has no impact on the trade balance of home country d) Policy by rule may be preferred than policy by discretion

Indicate whether each of the following statement is true, false, or uncertain, and justify your answer....

Indicate whether each of the following statement is true, false, or uncertain, and justify your answer. (a) If a company can choose to treat the cost of developing new software as capital expense or current expense for tax purpose, the company would treat it as capital expenses so that it is counted as investment. (b) Capital goods purchases are deducted both in the current VAT scheme in Korea and in the corporation income tax. (c) Theoretically, conditional grant and unconditional...

Indicate whether each of the following statement is true, false, or uncertain, and justify your answer....

Indicate whether each of the following statement is true, false, or uncertain, and justify your answer. (a) Tax is just the transfer of welfare as the sum people pays is the revenue of the government. (b) If the elasticity of demand is 0, or there is no change in quantity traded due to taxation, there is no excess burden of the tax. (c) Marginal excess burden is greater than average excess burden. (d) Imposition of Pigouvian tax to correct externality...

Determine whether the following statements are true or false , and justify your answer 1- Given...

Determine whether the following statements are true or false , and justify your answer 1- Given that accounting information is a public good , we have to have mandatory accounting regulation. 2- It is better to lobby the accounting standard - setter indirectly rather than directly. 3- A change in reported income is an economic consequence of a change in an accounting standard's requirements PLEASE JUSTIFY EVEN IF YES

Identify whether the following statements are True, False or Uncertain. Explain your answers (a) From consumption...

Identify whether the following statements are True, False or Uncertain. Explain your answers (a) From consumption surveys, there is clear evidence that the poor (those living on less than $1.25 a day) spend almost all (around 90%) of their income on food consumption. (b) Banerjee, Deaton and Duflo (2004) found that villagers could not utilize government health services regularly because the clinics were only open on Thursdays. (c) If the S-shaped relationship between health tomorrow and health today holds in...

Determine whether each of the following statements is true, false or uncertain, and brie y justify...

Determine whether each of the following statements is true, false or uncertain, and brie y justify your answer (2-3 sentences). Note: No credit will be given for unsupported answers. 1. The specic factors model predicts that countries open to free trade will not be perfectly specialized in the production of one good. 2. Mobile factors of production gain more from trade liberalization than immobile factors. 3. The Specic Factors model provides a good explanation for the increases in income inequality...

Indicate whether each of the following statements is true, false, or uncertain, and explain your answer...

Indicate whether each of the following statements is true, false, or uncertain, and explain your answer in great detail. If a word or phrase is italicized and bolded your answer must include a concise definition of the word or phrase. You must include graphs when necessary. How does an economy get out of a recessionary gap? (use a graph.)

Indicate whether each of the following statements are true, false, or uncertain and explain your answer....

Indicate whether each of the following statements are true, false, or uncertain and explain your answer. a. Consider two zero-coupon bonds, one with a short maturity, and one with a longer maturity. The value of the long-maturity bond is more sensitive (in % terms) to changes in interest rates than the short-maturity bond' s value. b. If the Internal Rate of Return (IRR) of an investment project is above its cost of capital, then the NPV of the project (calculated...

Determine whether each of the following statements is true or false. Justify your answer for any...

Determine whether each of the following statements is true or false. Justify your answer for any that you think are false. a) The margin of error for a 95% confidence interval for the population proportion p increases as the sample size increases. b) The margin of error for a confidence interval for the population proportion p, based on a specified sample size n, increases as the confidence level decreases . c) The margin of error for a 95% confidence interval...

Indicate whether each of the following statements is True or False, and Briefly Justify your answer....

Indicate whether each of the following statements is True or False, and Briefly Justify your answer. The Coefficient of Determination in a multiple linear regression model, R2, is the ratio of residual sum of squares (RSS) to total sum of squares (TSS). It tells us the percentage of unexplained variation in the dependent variable.

Subjects