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Unformatted text preview: on in private savings.
b) an increase in government savings is always matched by an increase in the government budget deficit.
c) an increase in government savings is always matched by an equal increase in private savings.
d) an increase in government savings is always matched by an equal reduction in private savings.
25) An important reason why Ricardian equivalence may fail is if
a) borrowing and lending is done through intermediaries.
b) government debt incurred today may not be paid off until after some current consumers are deceased.
c) state and local governments also engage in debt finance.
d) some consumers are borrowers, while other consumers are lenders.
26) Ricardian equivalence is often less attributed to David Ricardo and more attributed to
a) Gerald O’Driscoll.
b) Adam Smith.
c) Milton Friedman.
d) Robert Barro.
Answer: (d) 5 27) When different consumers pay different amounts of taxes, Ricardian equivalence may fail because
a) alternative ways of collecting the same tax revenue can affect the distribution of income.
b) consumers can become jealous of one another.
c) such differences in taxes create credit market imperfections.
d) higher taxes on more talented people may be politically popular.
28) Distorting taxes can invalidate Ricardian equivalence because
a) they confuse consumers about the need for government to repay its debt.
b) alternative ways of collecting the same tax revenue produce different amounts of lost welfare.
c) they are inferior to lump-sum taxes.
d) they are more popular, politically, than lump-sum taxes.
29) The phenomenon that some consumers pay a higher interest rate when they borrow than the interest rate they
receive when they lend is best described as an example of
a) irrational behavior.
b) a credit market imperfection.
c) a vast banking conspiracy.
d) the burden of public debt.
30) When there are credit market imperfections, an increase in government debt may be advantageous because it
a) discourages credit-constrained consumers from borrowing too much.
b) allows credit-constrained co...
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