Ricardian Equivalence

Explain Ricardian equivalence, and discuss what implication it might have on the efficacy of expansionary fiscal policy. Ricardian equivalence states that for a given level of government spending a change in taxes – financed by a deficit – will have no effect on the real economy. It is posited that individuals are forward thinking and Read more about Ricardian Equivalence[…]

The Twin Deficit Hypothesis

Simply put the twin deficit hypothesis is the view that an economy running a fiscal budget deficit will also run a current account deficit. It stems from a national accounting equation which says that NX = S-I. We arrive at this point because Classical economists take S = Y-C-G, so we can arrange our national Read more about The Twin Deficit Hypothesis[…]