Ricardian Equivalence Maintains That an Increase in Government Spending Financed

question 43

Multiple Choice

Ricardian Equivalence maintains that an increase in government spending financed by debt will result in a corresponding increase in

• A) savings, in anticipation of future taxes.
• B) output and consumption, stimulated by the additional government spending.
• C) consumer spending, in anticipation of lower future taxes.
• D) aggregate demand, because the additional spending was financed by borrowing rather than current taxation.

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Definitions:

Unemployment Rate

The percentage of the labor force that is unemployed.

Money Supply

The aggregate of cash, coins, and deposits in checking and savings accounts, representing the financial assets available within an economy at a certain point in time.

Inflation

A sustained increase in the general price level of goods and services in an economy over a period of time.

Unemployment

The condition of someone being able to work and actively seeking work but unable to find employment.