If the Ricardian equivalence proposition is correct,then an increase in the deficit will lead to
A)an increase in private saving.
B)a decrease in investment spending.
C)a lower standard of living in the future.
D)all of the above
E) none of the above

Question

Quizplus · Accepted Answer

The Ricardian equivalence proposition suggests that when the government increases its deficit, individuals anticipate future taxes to pay off this debt and thus increase their savings to offset the expected future tax burden, leaving their consumption and investment plans unchanged.

If the Ricardian Equivalence Proposition Is Correct,then an Increase in the Deficit