The Barro-Ricardo equivalence proposition relies on
A)the presence of an operational bequest motive
B) the absence of liquidity constraints
C) the presence of liquidity constraints
D)both A and B
E)both A and C

Question

Quizplus · Accepted Answer

The Barro-Ricardo equivalence proposition, also known as Ricardian equivalence, relies on the presence of an operational bequest motive (A) and the absence of liquidity constraints (B). This theory suggests that government debt and taxation are equivalent in their effect on the economy, assuming that individuals consider the future taxes implied by debt and adjust their savings accordingly.

The Barro-Ricardo Equivalence Proposition Relies on