The Implication of Ricardian Equivalence Is That If the Government

question 4

Multiple Choice

The implication of Ricardian equivalence is that if the government increases expenditures without increasing taxes, the increase in government expenditures will be:

• A) at least partially offset by a reduction in consumer spending.
• B) enhanced by an increase in consumer spending.
• C) more than offset by a reduction in firm spending.
• D) enhanced by the multiplier effect.
• E) instantly offset by automatic stabilizers.

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Definitions:

Restrictive Policy

Policies or conditions imposed by lending institutions or governments that limit certain activities or operations to reduce risk.

Just-in-time

A production strategy that aims to reduce in-process inventory and associated carrying costs by producing goods only as they are needed in the production process.

Carrying Costs

Expenses associated with holding inventory, including storage, insurance, and spoilage costs.

Shortage Costs

Costs incurred by a business when the demand for its products exceeds its supply, often leading to lost sales and customer dissatisfaction.