The implication of Ricardian equivalence is that if the government increases expenditures without increasing taxes, the increase in government expenditures will be:
A) at least partially offset by a reduction in consumer spending.
B) enhanced by an increase in consumer spending.
C) more than offset by a reduction in firm spending.
D) enhanced by the multiplier effect.
E) instantly offset by automatic stabilizers.

Question

Quizplus · Accepted Answer

Ricardian equivalence suggests that individuals will anticipate future tax increases in response to government spending increases and will therefore reduce their current consumption to save for those future taxes, partially offsetting the effects of the government spending. Therefore, the increase in government expenditures will be at least partially offset by a reduction in consumer spending.

The Implication of Ricardian Equivalence Is That If the Government