Ricardian Equivalence Argues That When the Government Cuts Taxes and Raises

question 25

Multiple Choice

Ricardian equivalence argues that when the government cuts taxes and raises its deficit,

• A) consumers anticipate that they will face lower taxes later to pay for the resulting government debt.
• B) consumers anticipate that they will higher services from the government.
• C) consumers anticipate that they will face higher taxes later to pay for the resulting government debt.
• D) consumers anticipate it will affect their future taxes, in general in the direction of lowering future taxes.
• E) consumers anticipate that the low tax rates will continue.

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Definitions:

Minimum Efficient Scale

The smallest amount of production a company can achieve while still taking full advantage of economies of scale regarding cost per unit.

Natural Monopoly

A type of monopoly that exists due to the high fixed or start-up costs of operating a business in a specific industry, making it inefficient for new firms to enter.

Limited Market

A market with restrictions on the scope of products or services that can be sold or on who can participate as buyers or sellers.

Pure Monopolists

Firms that are the sole provider of a product or service with no close substitutes, granting them significant control over market price.