fppppp hard unkown Flashcards
whats austerity
a set of economic policies, usually consisting of tax increases, spending cuts, or a combination of the two, used by governments to reduce budget deficits.
whats the government budget identity
whats the determinants of debt to gap growth equation and whats the 4 key determinants
what are the two fiscal rules (about debt to GDP growth)
show graphically the government debt ratio. case 1 - the real interest rate exceeds the growth rate
show graphically the government debt ratio. case 1 - the growth rate exceeds the real interest rate
show graphically the switch from the case where the growth rate exceeds the final interest rate to the case where the growth rate is less than the real interest rate with tighter fp
explain the Ricardian equivalence when G is tax financed
households should fully internalise over the lifetime the choices of government spending and financing. to know effects of deficit, need to look at implications for permanent income. explain
explain the Ricardian equivalence, G is borrowing financed
what does the Ricardian equivalence and PIH depend on
• no credit constraints: households can borrow
• households and government face same interest rate and
time horizon
• households behave as if they lived forever (incorporate
utility of heirs in their consumption behaviour)
explain a temporary fiscal boost, under Ricardian equivalence
whats the optimal fiscal rule: ensures that debt/GDP does
not increase over time. and its implications
explain deficit bias
when do problems arise of cost of rising gov debt
what happens if assume shock and r < γy, government needs to tighten fiscal policy to counteract effects on debt ratio and ρ ↑
