A debt-financed tax cut will ______ current consumption in the traditional view and ______ current consumption in the view of Ricardian equivalence.

Question

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In the traditional view, a debt-financed tax cut is believed to increase current consumption because people have more disposable income. However, under Ricardian equivalence, it is argued that individuals anticipate the future tax increases necessary to pay off the debt, so they save the tax cut instead of spending it, leaving current consumption unchanged.

A Debt-Financed Tax Cut Will ______ Current Consumption in the Traditional