(a). Who bears the burden of the government debt? Explain why. Under what circumstances is there no burden to be borne?

(b). What are the main reasons (give at least three) that Ricardian equivalence might not hold?

(c). Show using the IS-LM and the AD-LRAS-SRAS figures what happens to real interest rate, output and prices if there is a temporary increase in government purchases for military purposes. Will it matter whether the temporary increase in military spending is funded by taxes or by borrowing?

Answer rating: 100% (QA)

a The future generation bears the debt burden This is because it does not matter which generat... View the full answer