Which of the factors listed below might cause the Ricardian equivalence proposition to be violated?
A)There may be international capital inflow and outflows.
B)Consumers may not understand that increased government borrowing today is likely to lead to higher future taxes.
C)There may be constraints on the level of government spending.
D)There may be constraints on the level of government taxation.

Question

Quizplus · Accepted Answer

Ricardian equivalence proposition is based on the assumption that consumers understand that increased government borrowing today is likely to lead to higher future taxes, and therefore adjust their consumption accordingly. However, if consumers do not understand this relationship, the proposition may be violated.

Which of the Factors Listed Below Might Cause the Ricardian