Description
- (25 points) Suppose the U.S. government engages in an expansionary fiscal policy. What will be the effects of this policy on real GDP, inflation, interest rates, and the exchange of the dollar. Explain and graph using the AD/AS Model.
- (25 points) In 2001 and 2003, the U.S. Congress passed legislation that permanently lower taxes. In 2003 household saving was 3.5% of disposable income, in it fell to 2.2% from 2004 to 2007.
Is this decrease in saving the result of the Ricardian equivalence? If yes, explain your answer. If not, explain your answers.
Explanation & Answer
Attached.
Running head: INTERMEDIATE MICRO ECONOMICS
Intermediate micro economics
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INTERMEDIATE MICRO ECONOMICS
1. An expansionary fiscal policy has an effect of increasing the aggregate demand which is
achieved by increases in purchases made by the government and/or by reducing tax,
which will shift the AD curve to right, which increases both price level (increasing
inflation) and real GDP in sho...
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