The Idea That If Governments Cut Taxes but Not Spending

question 59

Multiple Choice

The idea that if governments cut taxes but not spending, people will not change their behavior, and expansionary policy will have little expansionary effect is known as:

• A) Ricardian equivalence.
• B) Keynesian policy.
• C) the invisible hand.
• D) Stimulus policy.

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Definitions:

Internalize

The process of incorporating the cost of externalities into the decision-making processes of relevant parties, often through regulation or market-based incentives.

Corrective Taxes

Taxes designed to correct the market outcomes that are not efficient by themselves, usually by discouraging negative externalities.

Market-Based Solution

Strategies or policies that use market forces and principles to address and solve economic and social issues.

Pollution

The release of pollutants into the environment, leading to harmful changes, typically resulting from human actions.