The proposition that states that whether government finances its deficit by borrowing or by increasing taxes is irrelevant is called:

Question

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The proposition that government finances its deficit by borrowing or by increasing taxes is irrelevant is called the Ricardian Equivalence. This theory suggests that individuals will anticipate future tax increases to pay for deficits and will adjust their spending accordingly, making the method of financing the deficit irrelevant in terms of its impact on the economy. Monetizing the deficit (choice B) refers to the government printing money to finance its deficit, which can lead to inflation. The law of demand (choice A) refers to the inverse relationship between the price of a good or service and the quantity demanded. The quantity theory of money (choice D) suggests that the quantity of money in circulation directly affects the price level.

The Proposition That States That Whether Government Finances Its Deficit