The personal saving rate in the U.S. ________ after the tax cuts of the early 1980s, evidence ________ the Barro-Ricardo equivalence theorem.

Question

Quizplus · Accepted Answer

According to the Barro-Ricardo equivalence theorem, tax cuts should not affect the personal saving rate because individuals will anticipate future tax increases to finance the tax cuts and save accordingly. However, the fact that the personal saving rate fell after the tax cuts of the early 1980s contradicts this theory and therefore opposes it, leading us to choose option D.

The Personal Saving Rate in the U