One Variant of Rational Expectations Theory That Supports the Long-Run

question 21

Multiple Choice

One variant of rational expectations theory that supports the long-run neutrality of fiscal policy asserts that

• A) any tax reduction enacted now ultimately is covered by a future tax increase because all federal borrowing must eventually be paid off.
• B) any government spending financed by either higher taxes or increased borrowing must somehow be covered by taxpayers' liabilities.
• C) people that anticipate future tax increases immediately begin to save to cover their future liability and thus reduce aggregate demand by an amount equal to the anticipated stimulus.
• D) all of the above fit together to predict fiscal neutrality.
• E) none of the above can be used to predict fiscal neutrality.

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Definitions:

Registered

Officially recorded and recognized by authorities or designated organizations.

American Adults

Individuals living in the United States who are legally recognized as adults, usually 18 years or older.

Public Opinion

Public opinion is composed of the values and attitudes of the adult population as a whole. It is expressed mainly in polls and letters to lawmakers and gives politicians a reading of citizen preferences.

Adult Population

The segment of a society comprised of individuals typically aged 18 or older who are considered legally responsible and autonomous.