The government decides to reduce income taxes due to a recession in the economy over the past nine months. The reduction in income taxes will effectively boost spending in the economy if:. A) Ricardian equivalence does not hold-people choose to save the majority of the extra income they now take home.
B) Ricardian equivalence does not hold-people choose to spend the majority of the extra income they now take home.
C) Ricardian equivalence holds--people choose to spend the majority of the extra income they now take home.
D) Ricardian equivalence holds-people choose to save the majority of the extra income they now take home.

B) Ricardian equivalence does not hold-people choose to spend the majority of the extra income they now take home.

Explanation:

According to the Ricardian equivalence, in this the consumer wants to enjoy the similar wealth all over the life due to which the deduction of the tax would not likely to rise the consumption of the consumers. They spent the similar amount. Also the consumer try to expect the loss arise in the future because of the tax rise and at the same time the government can increased the tax so that the loss i.e. spent would be balanced.

Now in the given situation if Ricardian equivalence grasp the income deduction so the consumption would not rise due to which the company can be within the recession

hence, the correct option is B.

a progressive tax is a tax that imposes a lower tax rate on low-income earners compared to those with a higher income, making it based on the taxpayer's ability to pay. that means it takes a bigger percentage from high income earners than it does from low income people.