The Ricardian Equivalent Theorem implies that a change in the timing of taxes
A) has a positive effect on both consumption and the real interest rate.
B) has a negative effect on both consumption and the real interest rate.
C) affects consumption negatively and the real interest rate positively.
D) affects consumption positively and the real interest rate negatively.
E) has no effect on consumption or the real interest rate.

Question

Quizplus · Accepted Answer

The Ricardian Equivalent Theorem suggests that consumers are forward-looking and perceive government debt as future taxes, so changes in tax timing do not affect overall consumption or interest rates.

The Ricardian Equivalent Theorem Implies That a Change in the Timing