If the Ricardian equivalence proposition is correct,then
A)deficits harm future generations.
B)deficits reduce investment spending.
C)deficits stimulate the economy in the short run.
D)all of the above
E) none of the above

Question

Quizplus · Accepted Answer

The Ricardian equivalence proposition suggests that government deficits do not affect the level of demand in an economy because individuals anticipate future taxes that will be needed to pay off the debt. They save more to pay for these future taxes, offsetting the increase in demand that the deficit spending was supposed to create. Therefore, it argues against the traditional views that deficits harm future generations, reduce investment spending, or stimulate the economy in the short run.

If the Ricardian Equivalence Proposition Is Correct,then