The Ricardian Equivalence proposition suggests that a tax increase that causes a budget surplus will
A)cause an increase in output.
B)cause no change in output.
C)cause a reduction in output.
D)a reduction in consumption.

Question

Quizplus · Accepted Answer

The Ricardian Equivalence proposition suggests that individuals will anticipate future tax increases to pay for the current tax cut and therefore will not change their consumption behavior. As a result, there will be no change in output, and the budget surplus will not have a stimulative effect on the economy.

The Ricardian Equivalence Proposition Suggests That a Tax Increase That