The theoretical proposition that government deficits do not affect the level of output because individuals realize that they have to pay the deficits in the future, and therefore increase their savings now, is called:

Question

Quizplus · Accepted Answer

The Ricardian equivalence theorem posits that government budget deficits do not affect the total level of demand in an economy because individuals anticipate future taxes to pay off the deficits and thus save more to offset their future tax liabilities, leaving overall spending unchanged.

The Theoretical Proposition That Government Deficits Do Not Affect the Level