The Ricardian Equivalence Theorem Implies That

question 14

Multiple Choice

The Ricardian equivalence theorem implies that

• A) government debt policy must be handled correctly for the economy to prosper.
• B) the amounts of government spending are neutral.
• C) an increase in government spending has no effect on the economy, as long as there is an equal change in taxes.
• D) the timing of taxes collected by the government is neutral.
• E) the present value of government spending must be equal to the present value of taxes.

---

Definitions:

Pendulum Clock

A clock that keeps time by using a swinging weight, or pendulum, as its timekeeping element.

Complete Cycle

A full sequence of events that returns to the starting point or condition, often referred to in contexts like oscillations or business cycles.

Two Decimal Places

A numerical representation precise to two digits to the right of the decimal point.

Rationalize Denominator

The process of eliminating a square root or imaginary number from the denominator of a fraction.