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.
B
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Refer to Figure 26-12. In the dynamic AD-AS model, if the economy is at point A in year 1 and is expected to go to point B in year 2, and the Federal Reserve pursues no policy, then at point B
A) the unemployment rate is greater than the natural rate of unemployment. B) incomes and profits are falling. C) there is pressure on wages and prices to fall. D) firms are producing above capacity.
Individuals become dependent on welfare payments because the benefits that have to be given up in order to become employed are higher than the benefits from working
a. True b. False