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Basic Question 2 of 4
The Ricardian Equivalence theorem suggests that when a government tries to stimulate demand by increasing debt-financed government spending, demand remains unchanged. This is because the public will save its excess money in order to pay for future tax increases that will be initiated to pay off the debt. The theory implies that policymakers would most likely favor ______ to combat a recession.
B. monetary policy
C. They would favor neither policy particularly.
A. fiscal policy
B. monetary policy
C. They would favor neither policy particularly.
User Contributed Comments 1
User | Comment |
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EEEEvia | policymaker means Ricardo?? I thought in this q where it means the government. |
I just wanted to share the good news that I passed CFA Level I!!! Thank you for your help - I think the online question bank helped cut the clutter and made a positive difference.
Edward Liu
Learning Outcome Statements
explain the interaction of monetary and fiscal policy
CFA® 2024 Level I Curriculum, Volume 1, Module 4.