1. Answer both parts (a) and (b).

(a) Explain the Ricardian Equivalence Theorem using a two period model of consumption. Explain in detail.

(b) Is the Ricardian Equivalence Theorem likely to hold in practice? Explain in detail.

2. Answer both parts (a) and (b).

(a) What does r > g mean? Explain in detail.

(b) How does it help explain the recent evolution of income inequality? Explain in detail.