Ricardian equivalence suggests that the government must pay off its debt by
A) reducing government spending in the future.
B) increasing taxes in the future.
C) transferring surpluses to the debt.
D) reduces private savings in the future.
E) increases the real interest rate.

Question

Quizplus · Accepted Answer

Ricardian equivalence posits that when a government finances its spending through debt, people anticipate future tax increases to pay off that debt, leading them to save more in the present to pay for future tax liabilities.

Ricardian Equivalence Suggests That the Government Must Pay Off Its