According to the Ricardian equivalence theorem, government deficits do not affect the level of output because people:
A. recognize that current deficits must be paid in the future and therefore increase savings today to pay higher future taxes.
B. know that current deficits must be paid in the future and therefore reduce savings today.
C. recognize that current deficits must be paid by future generations and therefore spend more today.
D. do not understand the relationship between deficits and aggregate demand.
Answer: A
You might also like to view...
Which of the following will facilitate the enforcement of a cartel?
A) most-favored-customer clauses B) reports of bids on government contracts C) meet the competition or price match D) All of the above
In the long run the monopolistic competitor
A. charges the same price but produces a greater output than the perfect competitor. B. charges a higher price but produces a smaller output than the perfect competitor. C. charges a higher price and produces a higher output than the perfect competitor. D. charges a lower price and produces a lower output than the perfect competitor.
Answer the next question based on the following list of items that are related to aggregate demand and/or aggregate supply. 1) Government Spending2) Consumer Expectations3) Degree of Excess Capacity4) Personal Income Tax Rates5) National Income Abroad6) Business Taxes7) Domestic Resource Availability8) Prices of Imported Products9) Profit Expectations on InvestmentsWhich combination of factors best explain why the aggregate supply curve would shift?
A. 1 and 2 B. 2 and 9 C. 6 and 7 D. 3 and 5
In the space provided in the graph above, draw a demand curve, D1, and then draw a second demand curve, D2, that illustrates a decrease in demand.
