The Ricardian Equivalence Theorem implies that a change in the timing of taxes
A) has a positive effect on both consumption and the real interest rate.
B) has a negative effect on both consumption and the real interest rate.
C) affects consumption negatively and the real interest rate positively.
D) affects consumption positively and the real interest rate negatively.
E) has no effect on consumption or the real interest rate.

Question

Quizplus · Accepted Answer

The Ricardian Equivalence Theorem states that the timing of taxes does not affect consumption or the real interest rate. Specifically, it argues that individuals will adjust their savings behavior to offset any changes in government deficits caused by changes in the timing of taxes, such that the overall impact on consumption and real interest rates is zero. Therefore, the correct answer is E, which states that there is no effect on consumption or the real interest rate.

The Ricardian Equivalence Theorem Implies That a Change in the Timing