SOLVED

1) According to Ricardian Equivalence theory, a tax cut ________. A) will tend to have little economic effect. B) will tend to reduce the magnitude of the trade-off between inflation and the rate of unemployment. C) can be an effective policy tool in the midst of an economic downturn. D) must be used in conjunction with money supply changes over the course of the business cycle. 2) According to Ricardian equivalence, a long-run impact on the economy occurs when the government ________. A) lowers taxes B) issues more government bonds C) increases spending on capital goods D) raises taxes 3) According to Ricardian equivalence, the key consequence of an increase in the budget deficit that arises from a tax cut is ________. A) a decrease in private investment B) an increase in inflation C) an increase in the public’s holding of government bonds D) an increase in the supply of money 4) Which government policy is the principal focus of Ricardian Equivalence? A) tax cuts B) government spending increases C) government borrowing D) seignorage 5) Ricardian Equivalence theory is based on the view that ________. A) the impact of a tax cut is felt primarily on domestic consumption spending. B) households tend to take future events into account when engaging in economic decision-making. C) the price of a commodity is negatively related to the quantity of that good demanded. D) a trade-off exists between the use of monetary and fiscal policy in influencing the level of income. 6) According to Ricardian Equivalence, consumers may not respond to a tax cut ________. A) if that tax cut is directed solely at upper income groups. B) if that tax cut is directed solely at lower income groups. C) since they understand a tax cut today will lead to a tax increase in the future. D) if they lack patriotic fervor. 7) According to Ricardian Equivalence, crowding-out ________. A) is incomplete. B) will raise the level of domestic income. C) is complete. D) does not play a role in influencing private investment levels. 8) According to Ricardian Equivalence, a tax cut will not have a material impact on consumption spending since ________. A) households will simply save the monies received from the tax cut. B) the value of the tax multiplier is one. C) a tax cut must lead to an increase in prices, which leaves the real value of consumption unchanged. D) a decrease in taxes will be balanced, under current federal law, by a government spending increase. 9) One objection to the notion of Ricardian Equivalence is that ________. A) households will recognize that a tax cut today will only lead to a tax increase in the future. B) individuals are short-sighted in their spending decisions. C) borrowing constraints have largely been eliminated due to financial innovation in the provisioning of consumer credit. D) households typically save most of the monies received from a tax cut. 10) The evidence with respect to the validity of Ricardian Equivalence ________. A) suggests that it matters little whether government debt is held by the central bank or by the public B) clearly provides support for the argument C) clearly refutes the argument D) is difficult to interpret, since so many factors may affect national saving 11) Ricardian Equivalence theory assumes that ________. A) an anticipated increase in the income of future generations does not deter saving today on their behalf B) government spending remains constant C) many people are subject to borrowing constraints D) tax cuts have a positive impact on aggregate supply 12) Suppose that most government spending was on capital goods that contribute to economic growth. How would that affect the Ricardian equivalence debate? 13) What does Ricardian equivalence imply about the relative size of the expenditure and tax multipliers?