If Ricardian equivalence does NOT hold,a budget deficit arising from a tax cut will
A)have no effect on national saving.
B)have no effect on the current account.
C)increase national saving.
D)increase consumption.

Question

Quizplus · Accepted Answer

If Ricardian equivalence does not hold, a tax cut financed by a budget deficit will increase disposable income and as a result, consumption expenditure will increase which will not increase national saving, neither current account is affected by the budget deficit arising from a tax cut.

If Ricardian Equivalence Does NOT Hold,a Budget Deficit Arising from a Tax