An important reason why Ricardian equivalence may fail is if
A)real interest rates start to increase.
B)state and local governments also engage in debt finance.
C)some consumers are borrowers, while other consumers are lenders.
D)borrowing and lending is done through intermediaries.
E)government debt incurred today may not be paid off until after some current consumers are deceased.

Question

Quizplus · Accepted Answer

Ricardian equivalence assumes that consumers take into account future tax liabilities due to government borrowing. However, if the repayment of government debt is deferred until after some current consumers are deceased, the burden of repayment falls on future generations who did not participate in the borrowing decision. This creates an intergenerational transfer of wealth and can lead to Ricardian equivalence failing.

An Important Reason Why Ricardian Equivalence May Fail Is If