According to the Ricardian equivalence proposition,current deficits
A)will not affect consumption or national saving.
B)will affect consumption but not national saving.
C)will affect national saving but not consumption.
D)will affect both consumption and national saving.

Question

Quizplus · Accepted Answer

According to the Ricardian equivalence proposition, current deficits do not affect consumption or national saving because individuals will anticipate future tax increases to pay for the deficits and will therefore save more in the present to offset the future tax burden. This means that any increase in government borrowing and spending will be fully offset by an equal reduction in private borrowing and spending.

According to the Ricardian Equivalence Proposition,current Deficits