1. wealth increases when the price level is fixed and there is less than full employment if Ricardian Equivalence holds.
2. wealth is unaffected when there is price flexibility and full employment and Ricardian Equivalence holds.
3. wealth is unaffected under fixed prices and less-than-full-employment conditions under the implicit traditional Keynesian assumption with respect to Ricardian Equivalence.
4. all of the above are true.
Choose the correct option.
You should have chosen option 4 . If Ricardian-equivalence holds a change in the stock of debt has no effect on wealth---the value of the asset is exactly offset by the future tax liabilities. Hence, wealth will increase if there is an increase in real money holdings. This will occur only if there is less than full employment and a fixed price level. So the statements in options 1 and 2 are true. Under traditional Keynesian assumptions a reduction in bond holdings will reduce wealth dollar-for-dollar because future tax liabilities are ignored. In this case the increase in nominal money holdings will be exactly matched by the reduction in bond holdings and wealth will be unaffected. Thus option 3 also produces a correct statement.
You might have thought that wealth would decline in the case of option 2 because the inflation generated by the increase in the money supply constitutes a tax on money holdings. A tax on money only arises, however, when cash holders have to give real resources to the government to maintain their real money balances constant. In this case nothing was given to the government to maintain real money balances constant. Bonds were given in return for the addition to nominal money balances but their value was offset by the future taxes that no longer have to be paid. So in this case there is no tax on money. There is simply a gratuitous increase in the price level and nominal money holdings with no effects on any real variables in the economy.