The Ricardian Equivalence Theorem States That

question 56

Multiple Choice

The Ricardian equivalence theorem states that

• A) the effects of an increase in government spending are equivalent to the effects of an increase in the money supply.
• B) an increase in government spending financed by higher taxes has no effect on aggregate demand.
• C) spending on national defense is a direct expenditure offset.
• D) government spending financed by taxes is equivalent to government spending financed by borrowing.

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Definitions:

Managerial Accounting

The field of accounting that focuses on providing information to managers for use in planning, decision-making, and operational control.

External Users

Individuals or entities outside of a company who use its financial statements, such as investors or creditors.

Internal Users

These are individuals or groups within an organization who use financial and other data in directing and controlling its operations; they include management, employees, and internal auditors.

Cost of Goods Sold

The costs directly related to the manufacturing of products sold by a business, which encompass both materials and labor expenses.