02 Jun Question Suppose it is the year 2014. The government wishes to stimulate the economy because it is concerned about an impending recession. I
Question
Suppose it is the year 2014. The government wishes to stimulate the economy because it is concerned about an impending recession. In particular, it is considering an increase in government purchases (for example on infrastructure) in 2015 to be reversed in 2016. Explain how this policy a?ects the IS curve. How does you answer depend on the way in which the spending is ?nanced and on the extent to which Ricardian equivalence holds?
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