The Ricardian equivalence proposition suggests that a government deficit caused by a tax cut
A)causes inflation.
B)causes a current account deficit.
C)raises interest rates.
D)doesn't affect consumption.

Question

Quizplus · Accepted Answer

The Ricardian equivalence proposition asserts that individuals will increase their savings in anticipation of future tax increases to pay for the current tax cut, leading to no net increase in consumption. Therefore, a government deficit caused by a tax cut doesn't affect consumption. Options A, B, and C are incorrect as they do not align with the Ricardian equivalence proposition.

The Ricardian Equivalence Proposition Suggests That a Government Deficit Caused