Ricardian equivalence implies that a government budget deficit:
A)increases current consumption.
B)increases future tax liabilities.
C)reduces national saving.
D)all of the above.

Question

Quizplus · Accepted Answer

Ricardian equivalence suggests that when a government runs a budget deficit, individuals anticipate future tax increases to pay back the deficit and thus save more in the present to offset the future tax burden. Therefore, the deficit does not increase current consumption and does not reduce national saving. However, it increases future tax liabilities for individuals.

Ricardian Equivalence Implies That a Government Budget Deficit