The Government of Moneyland Decides That It Is Not Going

question 20

Essay

The government of Moneyland decides that it is not going to change its spending but will decrease the taxes. According to the theory of Ricardian equivalence, what will be the effects of the government action on national saving?

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Definitions:

GAAP

Generally Accepted Accounting Principles, a framework of accounting standards, principles, and procedures from which financial statements are prepared in the United States.

Cumulative

Pertaining to an aggregate or total amount added up over time, often used in context with dividends that are accumulated if not paid out.

Noncumulative

A term often used in dividends policy, indicating that if a dividend is not paid out, it doesn't accumulate for future payment.

U.S. GAAP

United States Generally Accepted Accounting Principles, which constitute the framework of guidelines for financial accounting used in the US.