If Ricardian Equivalence Proposition Is True,a Budget Deficit Resulting from a Tax

question 21

Multiple Choice

If Ricardian equivalence proposition is true,a budget deficit resulting from a tax cut will have

• A)no effect on government expenditures.
• B)no effect on current account because it does not affect national saving.
• C)no effect on current account because people expect to pay lower taxes in the future.
• D)no effect on current account because people expect to increase their consumption.

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Definitions:

Volcanic Ash

Fine particles of rock and mineral matter expelled from a volcano during eruptions, which can have significant effects on climate, air quality, and aviation safety.

Radiocarbon Dating

A method for determining the age of an object containing organic material by using the properties of radiocarbon, a radioactive isotope of carbon.

Sedimentary Layer

A layer of material, often deposited by water, wind, or ice, that forms part of the sedimentary rock sequence.