According to the Barro-Ricardo equivalence theorem, a tax cut that increases the deficit will end up mainly increasing current ________ and so is ________ in raising output in the short run.

Question

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The Barro-Ricardo equivalence theorem suggests that a tax cut financed by increased government borrowing will lead individuals to save more in anticipation of future tax increases to pay off the debt, thus leaving consumption unchanged and making the tax cut ineffective in raising output in the short run.

According to the Barro-Ricardo Equivalence Theorem, a Tax Cut That