According to Ricardian Equivalence,a tax cut will not have a material impact on consumption spending since ________.

Question

Quizplus · Accepted Answer

According to Ricardian Equivalence, households will simply save the monies received from the tax cut, thereby offsetting any increase in consumption spending. This is because households understand that the tax cut must be paid for at some point in the future, and so they save the extra resources in anticipation of future tax increases or spending reductions. Therefore, tax cuts are seen as largely offsetting, and do not have a significant impact on consumption spending.

According to Ricardian Equivalence,a Tax Cut Will Not Have a Material