According to the Ricardian Equivalence Proposition

question 68

Multiple Choice

According to the Ricardian equivalence proposition,

• A)saving equals investment only at full employment.
• B)a decline in the demand for money results in an equivalent increase in the demand for nonmoney assets.
• C)the increase in current income from a tax cut is offset by higher taxes in the future to pay off the debt.
• D)government spending is the equivalent of investment spending.

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Definitions:

Variable Costing

An accounting method that only includes variable production costs (materials, labor, and overhead) in product cost calculation, excluding fixed overhead.

Unit Product Cost

The total cost associated with producing one unit of a product, including materials, labor, and overhead.

Direct Labor Cost

The total cost incurred by a company for the wages of workers who are directly involved in the manufacturing or production process.

Absorption Costing

A costing method that includes all manufacturing costs - direct materials, direct labor, and both variable and fixed manufacturing overheads - in the cost of a product.