Which of the following is a feature of the 'Ricardian Equivalence Theorem'?
A. Tax cuts financed by debt increase private consumption
B. Government debt is always neutral regardless of agents’ behaviour
C. Tax cuts financed by debt do not affect private consumption because agents anticipate future tax liabilities
D. Only liquidity-constrained agents matter
Answer: Option C
Solution (By JKSSB Mock Tests)
Ricardian equivalence asserts that, under certain conditions, debt-financed tax cuts do not stimulate consumption because forward-looking agents save the tax cut to pay the future taxes needed to service the debt.
Explanation:
Good money should be durable, portable, divisible, uniform, recognisable and relatively scarce so that it can effectively perform its functions.
Explanation:
Headline inflation measures the overall change in the price level of a comprehensive basket of goods and services, including volatile items such as food and fuel.
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