Q3.6

Explain how it can be desirable from an intertemporal perspective for a country to run a current account deficit at certain periods of time.

Q.3.7

What is Ricardian equivalence? Carefully explain how the Ricardian equivalence

proposition might be tested. Does the existing empirical evidence provide support for the

proposition?

Q.3.8 The Ricardian approach is, obviously, in stark contrast to the traditional Keynesian approach on the tax issue. What are the main criticisms levelled against Ricardian equivalence? Explain. Barro claimed that the relevant time horizon is not life time but infinity. Do you agree? Why?