The lesson to be learned from the Ricardian equivalence proposition is that
A)only government budget deficits generated by tax changes affect the macroeconomy.
B)government budget deficits do not affect the macroeconomy.
C)it is impossible for the government to actually reduce taxes.
D)the basic measure of the cost of government is the real resources that the government uses.

Question

Quizplus · Accepted Answer

The Ricardian equivalence proposition suggests that government budget deficits do not have an impact on the macroeconomy because individuals will anticipate future tax increases to pay off those deficits. Therefore, the government's use of real resources is the basic measure of its cost, rather than the size of the deficit.

The Lesson to Be Learned from the Ricardian Equivalence Proposition