The Ricardian Equivalence Theorem implies that, (a) consumers substitute leisure intertemporally. (b) current income is the...
The Ricardian Equivalence Theorem implies that, (a) consumers substitute leisure intertemporally. (b) current income is the key determinant of current consumption. (c) government deficits do not matter. (d) current government expenditures should be raised.
Homework Answers
Ricardian Equivalence Theorem indicates that effort of government to stimulate economy through increase in the government spending or increase in government deficit have no impact on the economy because household gaining income through such increased government spending does not increase their consumption in anticipation of future increase in tax by the government to meet its increased debt obligations in the future.
So,
In a manner, the Ricardian Equivalence Theorem implies that government deficit do not matter.
Hence, the correct answer is the option (c).
Add Answer to:
The Ricardian Equivalence Theorem implies that, (a) consumers
substitute leisure intertemporally. (b) current income is the...
The Ricardian equivalence theorem says o whatever the timing of taxes, consumption is the same. O higher government exp...
The Ricardian equivalence theorem says o whatever the timing of taxes, consumption is the same. O higher government expenses reduce consumption. O an increase in current consumption has to lead to a decrease in future consumption. o whatever the level of government expenses, consumption is the same.
What is functional finance? A. A view that because the Ricardian equivalence theorem is true in...
What is functional finance? A. A view that because the Ricardian equivalence theorem is true in theory and practice, the government should not use deficit spending. B. A view that government should make spending and taxing decisions on the basis of their effect on the economy rather than concern itself with balancing the budget. ° C. A moral view that the government budget should always be balanced except in wartime. O D. A view that deficit spending will crowd out...
Ricardian equivalence and the government budget constraint: Consider the intertemporal budget constraint in equation (18.5). Assume...
Ricardian equivalence and the government budget constraint: Consider the intertemporal budget constraint in equation (18.5). Assume the interest rate is i 5% (a) Suppose the government cuts taxes today by $100 billion. Describe three possible ways the government can change spending and taxes to satisfy its budget constraint. (b) Suppose consumers obey the permanent-income hypothesis (discussed in Chapter 10). Would their consumption rise, fall, or stay the same for each of the alternatives considered in part (a)? (c) What happens...
5) The Ricardian equivalence proposition suggests that a government deficit caused by a tax cut (Hint:...
5) The Ricardian equivalence proposition suggests that a government deficit caused by a tax cut (Hint: look at page 26 of lecture slides in Lecture 7) A) causes inflation B) causes a current account deficit. C) raises interest rates. D) doesn't affect consumption 6) In the saving investment diagram, an increase in current output would A) shift the saving curve to the left B) shift the investment demand curve to the left. C) not shift the curves. D) shift the...
3 Consumption Taxes and Ricardian Equiv- alence (8 points) Suppose a consumer has income y in...
3 Consumption Taxes and Ricardian Equiv- alence (8 points) Suppose a consumer has income y in period 1, y' in period 2, and faces a proportional tax on consumption. That is if consumption is c in period 1 'and c' in period 2, the consumer pays a tax sc on period 1 consumption and s'c' ou period 2 consumption. Thuss and s' represent the rate of sales tax in each period. The government wishes to collect total tax revenue in...
The government has decided to finance a deficit by borrowing (loans) so that consumers' spending will...
The government has decided to finance a deficit by borrowing (loans) so that consumers' spending will not be affected. Which of the following do they seem to be ignoring? A. The Laffer Curve B. Ricardian Equivalence C. Bayesian Posterior D. Tweedie's Formula
i understand why a decrease in tax will increaseconsumotion but i dont understand why a future...
i understand why a decrease in tax will increaseconsumotion
but i dont understand why a future tax raise will also increase
consumption.
in this case, does ricardian equivalence hold? thank you
6:41 PM Wed Oct 30 TODO+ Xaxes) may be advantageous because 54% + 8 0 A) it discourages credit-constrained consumers from borrowing too much. B) it increases the welfare of credit-constrained consumers. C) it eliminates the problems that cause credit market imperfections. D) it encourages more private savings. E)...
QUESTION 18 Which of the following is not an autonomous determinant of consumption expenditures? a. current...
QUESTION 18 Which of the following is not an autonomous determinant of consumption expenditures? a. current disposable income b. tastes and preferences c. the interest rate d. real wealth
What is a valid government response to a market with positive externalities? a) The implementation of...
What is a valid government response to a market with positive externalities? a) The implementation of a tax b) The provision of subsidies c) Increased regulation of the transaction d) The provision of free information regarding the true costs and benefits of the transaction Consumers often face a trade-off between ______ and ______. a) higher income; productive capacity b) leisure; time c) current consumption; future consumption d) labor; future consumption
Labor Economics 1. In the leisure-income model, the wage constraint shows a. the points that maximize...
Labor Economics
1. In the leisure-income model, the wage constraint shows a. the points that maximize a worker's utility b. all points that are equally preferred c. the wage rates that affect work decisions d. the available combinations of leisure and income 2. The slope of a wage constraint reflects the: a. rate at which a person is willing to substitute leisure for income c. income effect b. price of leisure d. substitution effect 3. When a worker maximizes her...
The Ricardian equivalence theorem says o whatever the timing of taxes, consumption is the same. O higher government expenses reduce consumption. O an increase in current consumption has to lead to a decrease in future consumption. o whatever the level of government expenses, consumption is the same.
What is functional finance? A. A view that because the Ricardian equivalence theorem is true in theory and practice, the government should not use deficit spending. B. A view that government should make spending and taxing decisions on the basis of their effect on the economy rather than concern itself with balancing the budget. ° C. A moral view that the government budget should always be balanced except in wartime. O D. A view that deficit spending will crowd out...
Ricardian equivalence and the government budget constraint: Consider the intertemporal budget constraint in equation (18.5). Assume the interest rate is i 5% (a) Suppose the government cuts taxes today by $100 billion. Describe three possible ways the government can change spending and taxes to satisfy its budget constraint. (b) Suppose consumers obey the permanent-income hypothesis (discussed in Chapter 10). Would their consumption rise, fall, or stay the same for each of the alternatives considered in part (a)? (c) What happens...
5) The Ricardian equivalence proposition suggests that a government deficit caused by a tax cut (Hint: look at page 26 of lecture slides in Lecture 7) A) causes inflation B) causes a current account deficit. C) raises interest rates. D) doesn't affect consumption 6) In the saving investment diagram, an increase in current output would A) shift the saving curve to the left B) shift the investment demand curve to the left. C) not shift the curves. D) shift the...
3 Consumption Taxes and Ricardian Equiv- alence (8 points) Suppose a consumer has income y in period 1, y' in period 2, and faces a proportional tax on consumption. That is if consumption is c in period 1 'and c' in period 2, the consumer pays a tax sc on period 1 consumption and s'c' ou period 2 consumption. Thuss and s' represent the rate of sales tax in each period. The government wishes to collect total tax revenue in...
i understand why a decrease in tax will increaseconsumotion
but i dont understand why a future tax raise will also increase
consumption.
in this case, does ricardian equivalence hold? thank you
6:41 PM Wed Oct 30 TODO+ Xaxes) may be advantageous because 54% + 8 0 A) it discourages credit-constrained consumers from borrowing too much. B) it increases the welfare of credit-constrained consumers. C) it eliminates the problems that cause credit market imperfections. D) it encourages more private savings. E)...
QUESTION 18 Which of the following is not an autonomous determinant of consumption expenditures? a. current disposable income b. tastes and preferences c. the interest rate d. real wealth
Labor Economics
1. In the leisure-income model, the wage constraint shows a. the points that maximize a worker's utility b. all points that are equally preferred c. the wage rates that affect work decisions d. the available combinations of leisure and income 2. The slope of a wage constraint reflects the: a. rate at which a person is willing to substitute leisure for income c. income effect b. price of leisure d. substitution effect 3. When a worker maximizes her...
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