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:

Total Revenues

The sum of all income generated by a company through its business activities, typically from the sale of goods and services before any costs or expenses are deducted.

Price-Inelastic

Describes a situation where the demand for a good or service is relatively unresponsive to changes in its price.

Demand Curve

A graphical representation showing the relationship between the price of a good or service and the quantity demanded by consumers over a given period.

Price-Elasticity Coefficients

Numerical values that measure the responsiveness of quantity demanded or supplied to a change in price; they help in assessing how price changes impact demand or supply levels.