The 'Ricardo equivalence' proposition states that: MCQ with Answer and Explanation

Question

Share Report Error

The 'Ricardo equivalence' proposition states that:

A. government spending is always contractionary

B. taxes have no effect

C. deficit-financed spending does not affect aggregate demand if households anticipate future taxes

D. government borrowing is always expansionary

Answer: Option C

Solution (By JKSSB Mock Tests)

Ricardian equivalence argues that public borrowing is offset by higher private saving in anticipation of future taxes.

This question belongs to: Economy GK Economy Set 1

Request complete Subject PDF

Discuss this Question (0)

No comments yet. Be the first to start the discussion!

Practice More Economy Set 1 Questions

Question #1

Which of the following is the correct sequence of stages in the business cycle?

A. Expansion, Peak, Contraction, Trough

B. Contraction, Expansion, Peak, Trough

C. Peak, Expansion, Trough, Contraction

D. Trough, Peak, Expansion, Contraction

View Answer & Solution Discuss

Get Complete Subject PDF for Economy GK

Correct Answer: Option A

Explanation:
The typical stages of a business cycle are expansion (recovery), peak (boom), contraction (recession) and trough (depression), and then the cycle repeats.

This question belongs to: Economy GK Economy Set 1

Question #2

Which of the following is a feature of the 'Ratchet Effect' in consumption theory?

A. Consumption falls symmetrically with income

B. Only permanent income matters

C. Consumption rises with income but is resistant to falling when income declines

D. Consumption is independent of past income

View Answer & Solution Discuss

Get Complete Subject PDF for Economy GK

Correct Answer: Option C

Explanation:
The ratchet effect, associated with Duesenberry’s relative-income hypothesis, describes the asymmetry whereby consumption adjusts upward more readily than downward when income changes.

This question belongs to: Economy GK Economy Set 1

Question #3

Which of the following was NOT part of the 1991 economic reforms?

A. Abolition of industrial licensing for most industries

B. Nationalization of commercial banks

C. Opening up to foreign investment

D. Reduction of import tariffs

View Answer & Solution Discuss

Get Complete Subject PDF for Economy GK

Correct Answer: Option B

Explanation:
Nationalization of commercial banks was done earlier in 1969 and 1980, not in the 1991 reforms.

This question belongs to: Economy GK Economy Set 1

Explore All Economy Set 1 MCQs