Temporary expansion of government purchases

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During the recession, the federal government implemented a temporary expansion of government purchases in an effort to help stimulate the economy. Suppose that current taxes remained unchanged. Compare and contrast the effects of this change in our basic real intertemporal model (with Ricardian equivalence) and the Keynesian model (with effciency wages). In particular, what will be the effects on current output, employment, the real interest rate, and the real wage? How could you distinguish between the models?

Reference no: EM131116834

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