Given a Reduction in Income Tax Withheld, but No Change

question 29

Multiple Choice

Given a reduction in income tax withheld, but no change in income tax owed, households that act according to Ricardian equivalence would ______ the extra take-home pay, while those facing binding borrowing constraints would ______ the extra-take home pay.

• A) spend; spend
• B) spend; save
• C) save; save
• D) save; spend

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Definitions:

Liberty League

A political organization founded in 1934 in the United States, advocating for limited government and free enterprise.

Particular Target

A specific objective or item that is singled out for attention or action.

Good Neighbor Policy

A foreign policy of the United States, initiated by President Franklin D. Roosevelt in the 1930s, aimed at strengthening friendly relations and mutual defense with the countries of Latin America.