According to the Theory of Ricardian Equivalence, If Consumers Are

question 65

Multiple Choice

According to the theory of Ricardian equivalence, if consumers are forward-looking, they will view a tax cut combined with no plans to reduce government spending as ______, so their consumption will ______.

• A) additional disposable income; increase.
• B) additional disposable income; remain unchanged.
• C) a rescheduling of taxes into the future; increase.
• D) a rescheduling of taxes into the future; remain unchanged.

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Definitions:

Depreciation

A technique for distributing the expense of a physical asset across its lifespan.

Balance Sheet

A financial statement that reports a company's assets, liabilities, and shareholders' equity at a specific point in time.

Common Stock

Type of equity ownership in a corporation, entitling holders to vote at shareholder meetings and to receive dividends.

Taxable Income

The amount of income that is used to calculate an individual's or a company’s income tax due, after exemptions and deductions.