Question: In the example laid out in the subsection titled Ricardian Equivalance: An Example, suppose that b < Ny' G' / Ny G .

In the example laid out in the subsection titled “Ricardian Equivalance: An Example,” suppose that

b < Ny' – G' / Ny – G

.

(a) Solve for the equilibrium real interest rate, and the consumption of lenders and borrowers in the current and future periods.

(b) Does Ricardian equivalence hold in this case? Explain why or why not.


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