The Ricardian equivalence proposition says that
A)a budget deficit caused entirely by a current tax cut has no effect on the economy.
B)a budget deficit caused entirely by an increase in government purchases has no effect on the economy.
C)any budget deficit generated by the government has no effect on the economy.
D)an increase in government spending accompanied by an equivalent increase in taxes has no effect on the economy.

Question

Quizplus · Accepted Answer

The Ricardian equivalence proposition suggests that a budget deficit caused by a tax cut has no effect on the economy because individuals anticipate future taxes to pay off the deficit and thus save the tax cut, leaving overall demand unchanged.

The Ricardian Equivalence Proposition Says That