Proponents of Ricardian Equivalence Argue That If Taxes Are Cut

question 10

Multiple Choice

Proponents of Ricardian equivalence argue that if taxes are cut without cutting government spending and taxes are not expected to increase in the future until after an individual expects to be dead, then the individual will:

• A) spend all of the increase in income.
• B) spend some of the increase in income and save the rest.
• C) use the increase in income to buy government bonds to help finance the deficit.
• D) save all of the increase in income and leave it as a bequest to his or her children.

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Definitions:

Tax Per Unit

A tax imposed on each unit of a good or service produced or sold, often used by governments to generate revenue or discourage consumption.

Tax

A mandatory monetary contribution or different kinds of charges laid on a taxpayer by government institutions to support government expenses and diverse public costs.

Buyers Pay

The amount of money that purchasers spend to acquire goods or services.

Price

The quantity of money considered, needed, or paid in exchange for something.