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:

Budget Line

An illustration showing all the potential combinations of two products that someone can buy, considering their wealth and the price points of the items.

Tax Rate

The percentage at which an individual or corporation is taxed on their income or profits.

Utility Function

A representation in economics that maps a set of goods and services into a level of utility or satisfaction.

Leisure

Time available for ease and relaxation where no work is done.