Ricardian Equivalence Maintains That an Increase in Government Spending Financed

question 43

Multiple Choice

Ricardian Equivalence maintains that an increase in government spending financed by debt will result in a corresponding increase in

• A) savings, in anticipation of future taxes.
• B) output and consumption, stimulated by the additional government spending.
• C) consumer spending, in anticipation of lower future taxes.
• D) aggregate demand, because the additional spending was financed by borrowing rather than current taxation.

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Definitions:

Parietal Bone

A bone forming the central side and upper back part of each side of the skull.

Temporal Bone

A complex bone located at the sides and base of the skull, housing the structures of the ear and forming part of the side walls of the skull.

Frontal Bone

The bone forming the front part of the skull and the upper part of the eye sockets.