A. What are the benefits of inflation-indexed bonds? How can these bonds assist an inflation-targeting central bank?

Suppose the government is imposing a debt-financed tax cut.

B. Based onthe traditional view, what will happen to:

1. national saving;
2. current consumption;
3. the real interest rate.

C.Based onthe view of Ricardian equivalence,what will happen to:

1. national saving;
2. current consumption;
3. the real interest rate.