The Ricardian Equivalence Theorem Suggests That an Increase in the Government

question 78

Multiple Choice

The Ricardian equivalence theorem suggests that an increase in the government budget deficit created by a tax cut will

• A) increase real Gross Domestic Product (GDP) in both the short and long run.
• B) decrease real Gross Domestic Product (GDP) in the short run, but increase it in the long run.
• C) increase real Gross Domestic Product (GDP) in the short run, but decrease it in the long run.
• D) have no effect on real Gross Domestic Product (GDP) in either the short run or the long run.

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Definitions:

Avoidance Training

A learning process in which an individual learns to prevent the occurrence of an unpleasant or harmful stimulus by performing particular behaviors.

Desensitization

A psychological process of reducing sensitivity or reaction to a stimulus, often used in therapy to manage phobias or anxiety.

Negative Reinforcer

An undesirable outcome or event that, when removed after a behavior, increases the likelihood of that behavior occurring in the future.

Positive

Characterized by the presence or possession of certain qualities, attributes, or outcomes, often implying optimism or constructive aspects.