A decrease in taxes will have no effect on real GDP if
A)people look at changes in taxes only in the present.
B)there is no crowding out.
C)the Ricardian equivalence theorem holds.
D)the tax decrease is offset by an increase in government spending.

Question

Quizplus · Accepted Answer

The Ricardian equivalence theorem states that a change in government spending or taxes will have no effect on the economy if individuals expect the government to offset any stimulus or restraint by adjusting future taxes or government spending. Therefore, a decrease in taxes would have no effect on real GDP if the Ricardian equivalence theorem holds.

A Decrease in Taxes Will Have No Effect on Real