Ricardian equivalence:
A) will occur more when consumers practice consumption smoothing.
B) does not occur when a political administration is set to change.
C) has not occurred in the United States.
D) is less significant when consumers deem tax cuts or rebates as permanent.

Question

Quizplus · Accepted Answer

Ricardian equivalence is the theory that suggests that consumers will adjust their behavior to offset any changes in government spending or taxation, which means that tax cuts would not lead to an increase in consumption. This effect is less significant when consumers believe that tax cuts are permanent and not just a temporary measure. Therefore, option D is the correct answer.

Ricardian Equivalence