An Increase in Taxes (When Ricardian Equivalence Doesn't Hold)causes the Real

question 8

Multiple Choice

An increase in taxes (when Ricardian equivalence doesn't hold) causes the real interest rate to ________ and the price level to ________ in general equilibrium.

• A)rise; rise
• B)rise; fall
• C)fall; rise
• D)fall; fall

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Definitions:

Proportion

A part of a whole expressed as a fraction or percentage, often used to compare quantities in terms of size or magnitude.

Quick Ratio

A liquidity measure that indicates a company's ability to cover its short-term liabilities with its most liquid assets.

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term obligations or those due within one year, calculated as current assets divided by current liabilities.

Liquidity

A firm’s cash and marketable securities position, refers to its ability to meet maturing obligations. A liquid asset is any asset that can be quickly sold and converted to cash at its “fair” value. Active markets provide liquidity.