Ricardian equivalence is often attributed to David Ricardo and more attributed to
A) Gerald O'Driscoll.
B) Adam Smith.
C) Milton Friedman.
D) Robert Barro.
E) Robert Lucas.

Question

Quizplus · Accepted Answer

Ricardian equivalence is a theory developed by Robert Barro in the 1970s, not by David Ricardo himself. Barro showed that in certain circumstances, when the government increases spending and finances it with debt, households may increase their savings to offset the perceived future tax burden required to repay that debt. This offsets the stimulative effects of government spending and results in no net increase in aggregate demand, which is known as the Ricardian equivalence proposition.

Ricardian Equivalence Is Often Attributed to David Ricardo and More