The Ricardian Equivalence Theorem Is Correct If Two Assumptions Are

question 31

Multiple Choice

The Ricardian equivalence theorem is correct if two assumptions are true. These assumptions are that people have:

• A)access to savings instruments and recognize the link between deficits and future taxes.
• B)no access to savings instruments and recognize the link between deficits and future taxes.
• C)access to savings instruments but cannot recognize the link between deficits and future taxes.
• D)no access to savings instruments and cannot recognize the link between deficits and taxes.

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Definitions:

Planning Budget

A budget designed for a particular level of activity, often used for planning and forecasting purposes.

Direct Labor

Factory labor costs that can be easily traced to individual units of product. Also called touch labor.

Units

A measure of quantity in accounting, production, or inventory management, often used to quantify the amount of output or sales.

Net Operating Income

The profit generated from a company's core business operations, excluding deductions for interest and taxes.