The Ricardian equivalence proposition states that an increase in the deficit causes
A)consumption to decrease.
B)savings to decrease.
C)investment to decrease.
D)all of the above
E) none of the above

Question

Quizplus · Accepted Answer

The Ricardian equivalence proposition suggests that individuals will anticipate future increases in taxes to pay off government debt, leading them to save more and consume less in the present. This would offset any potential increase in consumption or investment resulting from the deficit. Therefore, none of the choices in the given options would be affected by an increase in the deficit, making option E the correct choice.

The Ricardian Equivalence Proposition States That an Increase in the Deficit