According to Ricardian equivalence advocates, if the government announces a plan to balance the budget by reducing its deficits to zero, then the private sector will:

Question

Quizplus · Accepted Answer

Ricardian equivalence suggests that when the government reduces its deficits (implying future taxes will be lower), individuals anticipate lower future taxes and feel wealthier, thus they are likely to save less and spend more now, decreasing their savings.

According to Ricardian Equivalence Advocates, If the Government Announces a Plan