The idea that government budget deficits do not matter under certain circumstances is
A) called the Friedman-Lucas theory.
B) preposterous.
C) called the Ricardian equivalence theorem.
D) called the Milton Friedman theory.
E) attributed to Edward Prescott and Finn Kydland.

Question

Quizplus · Accepted Answer

The idea that government budget deficits do not matter under certain circumstances is called the Ricardian equivalence theorem, which suggests that consumers will take into account future tax liabilities when deciding how much to consume today. This theory proposes that there is no real economic impact on individuals or the economy as a whole when the government engages in deficit spending.

The Idea That Government Budget Deficits Do Not Matter Under