The proposition that increases in government spending that raise the government budget deficit has no effect on aggregate demand is called the

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The proposition that increases in government spending that raise the government budget deficit has no effect on aggregate demand is known as the Ricardian equivalence theorem. This theory suggests that individuals will anticipate future tax increases to pay for the increased government spending and will therefore save more and spend less, offsetting the increase in aggregate demand. This theory has been debated among economists, but it remains a widely-discussed concept in macroeconomic theory. The other options listed (open-economy effect, federalism effect, interest-rate effect) are unrelated to this concept.

The Proposition That Increases in Government Spending That Raise the Government