Supposing Ricardian equivalence holds, an increase in current taxes
A)increases government spending.
B)reduces future aggregate consumption.
C)increases current aggregate consumption.
D)reduces current saving.
E)reduces current aggregate consumption.

Question

Quizplus · Accepted Answer

If Ricardian equivalence holds, consumers anticipate that an increase in current taxes will be offset by a decrease in future taxes. Therefore, they will reduce their current saving to maintain their current consumption levels, as they expect no change in their lifetime wealth.

Supposing Ricardian Equivalence Holds, an Increase in Current Taxes