From the Ricardian View,a Consumer Should Not Raise His or Her

question 58

Multiple Choice

From the Ricardian view,a consumer should not raise his or her consumption when taxes are cut but government spending is not cut because:

• A) the government is going to raise taxes by exactly as much as the cut in the next year.
• B) the government is going to raise taxes by exactly as much as the cut plus interest in the next year.
• C) the government is sure to raise taxes by an amount equal in present value to the debt incurred this year,sometime in the taxpayer's lifetime.
• D) even if the government does not raise enough extra taxes during the taxpayer's lifetime to pay off,in present value,the debt incurred this year,the taxpayer should make provision for the taxes that will be levied on his or her heirs.

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Definitions:

MR = MC Output

The condition where Marginal Revenue (MR) equals Marginal Cost (MC) represents the profit-maximizing level of output for a firm.

Total Variable Costs

The sum of all costs that vary with output level in the short term.

Profit-maximizing Firm

A company that adjusts its production to achieve the highest possible profit based on its costs and the market demand.

Marginal Revenue

The revenue uplift from marketing one more unit of a product or service.