According to the Ricardian Equivalence Theory, What Would Happen If

question 7

Multiple Choice

According to the Ricardian equivalence theory, what would happen if the government were to cut taxes without changing its spending?

• A)Public and national saving would fall
• B)Public and national saving would rise
• C)Public and national saving would not change
• D)Private saving would rise, public saving would fall, and national saving would be unaffected

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Definitions:

Saving Rate

The percentage of take-home pay that is set aside for savings instead of being used for consumer spending.

Economic Growth

A rise in the economy's inflation-adjusted value of produced goods and services over time.

Net Worth

Net Worth is the total value of an individual's or entity's assets minus liabilities, indicating financial health or wealth at a point in time.

Assets

Resources owned by a person or business that have economic value or expected future benefit.