If Ricardian Equivalence Holds, Then an Expansionary Fiscal Policy Will

question 85

Multiple Choice

If Ricardian equivalence holds, then an expansionary fiscal policy will

• A) decrease aggregate demand in the short run.
• B) increase aggregate demand in the short run but not in the long run.
• C) increase aggregate demand in both the short run and in the long run.
• D) have no effect on aggregate demand either in the short or in the long run.

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Definitions:

Gain On Sale

The profit earned from the sale of an asset above its book value.

GAAP

A set of widespread accounting rules and standards, referred to as Generally Accepted Accounting Principles, used for financial reporting.

Fair Value

The estimated market value of an asset or liability, reflecting the amount at which it could be bought or sold in a current transaction between willing parties.

Residual Value

The estimated amount that an asset will be worth at the end of its useful life, often used in calculating depreciation and lease payments.