The proposition that decreases in taxes that raise the government budget deficit has no effect on aggregate demand is called the

Question

Quizplus · Accepted Answer

The proposition described is known as the Ricardian equivalence theorem, which argues that households will save any tax savings due to the expectation of future tax increases to pay for the deficit spending. Therefore, there would be no increase in aggregate demand as a result of the tax cut. The other choices are unrelated to the proposition described.

The Proposition That Decreases in Taxes That Raise the Government