The government has decided to give every person in the U.S. a $5 coupon that they can use at the grocery store to purchase their choice of cheese. We would expect this policy to lead to

Question

Quizplus · Accepted Answer

The $5 coupon would provide an incentive for consumers to purchase more cheese, which would lead to an increase in demand for cheese. However, there may be some direct expenditure offset as consumers may shift their spending from other food items to cheese. Therefore, while there would be an increase in aggregate demand, it may not be equivalent to the full impact of all the coupons redeemed. Choice A is incorrect because while there would be an increase in demand, it may not necessarily be equivalent to the full impact of all coupons redeemed. Choice B is incorrect because the Ricardian equivalence theorem states that changes in government debt-financed spending have no impact on aggregate demand, which is not applicable in this scenario. Choice C is incorrect because there is a direct expenditure offset that consumers may shift their spending from other food items to cheese.

The Government Has Decided to Give Every Person in the U.S