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:

Net Income

A company's earnings that remain after subtracting all expenses and taxes from total revenue.

Expenditure

Money spent or cost incurred in an organization's efforts to generate revenue, representing the consumption of goods and services.

Discount Period

The time period between the date of sale and the due date, during which a payment may be made at a reduced rate.

Capital Investment

Funds spent by a company to acquire or upgrade physical assets such as buildings, machinery, or equipment to boost its long-term revenue and profitability.