Which of the Following Provides the Clearest Statement of the Ricardian

question 19

Multiple Choice

Which of the following provides the clearest statement of the Ricardian equivalence theorem?

• A) Both an increase in government expenditures and a reduction in taxes will provide a substantial stimulus for aggregate demand.
• B) When additional debt is used to finance a tax cut, the lower taxes and higher interest rates will exert an equivalent impact on aggregate demand.
• C) The finance of government spending with additional debt is essentially the same thing as finance with higher taxes because the larger debt implies higher taxes in the future.
• D) A 10 percent reduction in tax rates will reduce tax revenues by 10 percent.

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