According to the Ricardian equivalence proposition,a temporary government budget deficit created by cutting taxes
A)will cause desired consumption to increase.
B)will cause future taxes to increase but will have no real economic effects.
C)will have the same real economic effects as a budget deficit created by raising government spending.
D)would have the same real effects whether or not consumers expect future taxes to change.

Question

Quizplus · Accepted Answer

The Ricardian equivalence proposition suggests that a temporary tax cut, which increases the budget deficit, will lead consumers to save the extra income to pay for expected future tax increases, resulting in no change in overall consumption or real economic effects.

According to the Ricardian Equivalence Proposition,a Temporary Government Budget Deficit