To the Extent That the Ricardian Equivalence Theorem Is True

question 15

Multiple Choice

To the extent that the Ricardian equivalence theorem is true, which of the conditions below will hold?

• A)Increases in the government budget deficit will not affect aggregate demand.
• B)Exports will not be considered part of aggregate demand.
• C)Investment spending will not be considered part of aggregate demand.
• D)The long-run aggregate supply curve will not be vertical.

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Definitions:

Direct Materials

Raw materials that are directly incorporated into a finished product and are a significant portion of the product’s cost.

Indirect Materials

Materials used in the production process that cannot be directly traced to the finished product in a cost-effective manner.

Decision-Making

The process of making choices by identifying a decision, gathering information, and assessing alternative resolutions.

Planning

The process of setting goals, developing strategies, and outlining tasks and schedules to accomplish the goals.