Explain the concept of Ricardian equivalence
What will be an ideal response?
This an economic theory of taxes and government deficits. It argues that when the government cuts taxes and raises its deficit, consumers anticipate higher taxes later to pay off the eventual government debt. Thus, they will raise their own private saving to offset the fall in government saving. Governments that lower their deficits will induce the private sector to lower its own saving. However, this doesn't hold in practice. Economists attribute only half of the decline in European private saving to Ricardian effects.
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Suppose you have $2000 in currency in a shoebox in your closet. One day, you decide to deposit the money in a checking account. How will this action affect the M1 and M2 definitions of the money supply?
A. Both M1 and M2 will remain unchanged B. M1 will decrease and M2 will increase C. Both M1 and M2 will increase by $2000
For a monopsonist, the supply of labor facing the firm is:
a. an insignificant portion of the market supply. b. perfectly horizontal. c. downward sloping. d. the summation of each firm's demand for labor. e. identical to the supply curve facing the market.