00:01
Of recurring equivalence and finding this would be if there is a change in timing of government spending but not the present value.
00:17
So imagine that you have a change in when the government is spending money but not how much they're spending in terms of present value.
00:25
This has to imply no change in choices.
00:31
So recurring equivalence means suppose that the government changes when it's spending but not how much it's spending.
00:39
If the government does that, if consumers don't react, then you have recurring equivalence.
00:45
So if we apply this diagram here, the consumer is making a choice between consumption today and consumption in the future.
00:54
We have a budget constraint and we have two points on that budget constraint, e1 and e2, and we have an indifference curve.
01:06
And this is the consumer's optimal choice.
01:10
So here's the consumer's choice.
01:13
Now the thing here is you can imagine these are two different timings of tax and expenditure by government.
01:28
When the government changes its tax and spending over time, it changes the point where the consumer's parents.
01:37
But since they're on the same budget constraint, you know they have the same present value.
01:44
The fact that they both rely on the same budget constraint means that the consumer has not been made poor, the consumer has not been made richer, so the total value of the taxation and spending that the government is doing is constant.
01:57
So here, because we have the same choice for both, you do have recurring equivalence.
02:08
Recurring equivalence is going to hold.
02:11
That's what's happening.
02:13
This diagram is showing you how the consumer's choice does not change in response to a change in the timing, but not the present value of government expenditure.
02:22
Now this was part a...