The Ricardian Equivalence Argument Says That Households and Businesses View

question 198

True/False

The Ricardian equivalence argument says that households and businesses view any increase in government spending as a sign that tax burdens will increase in the future, which will cause a decrease in private spending in anticipation of higher future taxes.

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Definitions:

Accounting Principle

A general rule or guideline that prescribes the methodology for recording financial transactions and preparing financial statements.

Asset Account

An accounting record that shows the amount of economic resources owned or controlled by an entity.

Liability Account

An account on the balance sheet representing obligations to pay money or deliver goods or services to another party in the future.

Tornado Damage

The destruction or damage caused to structures, lands, and properties as a result of a tornado, a rapidly rotating column of air in contact with both the surface of the Earth and a cumulonimbus cloud or, in rare cases, the base of a cumulus cloud.