The Ricardian Equivalence Theorem States That

question 125

Multiple Choice

The Ricardian equivalence theorem states that

• A) an increase in government spending has no effect on aggregate supply.
• B) increases in government spending have a larger impact on real Gross Domestic Product (GDP) than decreases in taxes.
• C) an increase in the government budget deficit created by a current tax cut has no effect on aggregate demand.
• D) an increase in the government budget deficit has no effect on real Gross Domestic Product (GDP) because it only affects the price index.

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Intellectual Property

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