Ricardian Equivalence Predicts

question 45

Multiple Choice

Ricardian equivalence predicts:

• A) that if governments cut taxes but not spending, people will not change their behavior.
• B) if people perceive current tax cuts to mean higher tax payments in the future, the cuts will have little expansionary effect.
• C) the consumers need to feel as though they will not have to pay in the future for current spending to make current tax cuts effective expansionary policy.
• D) All of these are true.

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Definitions:

Growth Limitations

Growth limitations refer to the factors or conditions that can hinder or restrain the expansion or progress of a company or economy.

Double Taxation

A taxation principle referring to income taxes paid twice on the same source of earned income, it can occur when income is taxed at both the corporate level and personal level.

Debt Obligations

The amount of money that a company or individual must repay to lenders, including both the principal and interest.

Distinct Legal Entity

Refers to a business that is legally considered separate from its owners, meaning it can own property, incur debts, and be sued independently.