To analyze Ricardian equivalence using the neoclassical consumption model, we must:
A) remove taxes from the present value of wealth
B) include inflation in the intertemporal budget constraint
C) treat the discount factor as greater than one
D) use nominal, rather than real, interest rates
E) assume marginal utility is constant

Question

Quizplus · Accepted Answer

Ricardian equivalence suggests that consumers consider government debt as future taxes, so taxes should be removed from the present value of wealth to reflect this in the model.

To Analyze Ricardian Equivalence Using the Neoclassical Consumption Model, We