According to the theory of Ricardian equivalence,if consumers are forward-looking,they will view a tax cut that has no plans to reduce government spending as ______,so their consumption will ______.

Question

Quizplus · Accepted Answer

According to the theory of Ricardian equivalence, if consumers believe that a tax cut will result in increased taxes in the future to pay for the current budget deficit, they will save the additional disposable income rather than spend it. Therefore, their consumption will remain unchanged. So, a tax cut is viewed as a rescheduling of taxes into the future under the theory. Therefore, Choice D (a rescheduling of taxes into the future; remain unchanged) is the correct answer.

According to the Theory of Ricardian Equivalence,if Consumers Are Forward-Looking,they