When the deficit increases under the concept of Ricardian Equivalence, what happens to savings in the private sector?
A) nothing
B) savings decrease
C) savings increase
D) savers hedge on purchases

Question

Quizplus · Accepted Answer

Under Ricardian Equivalence, when the government increases its deficit, individuals anticipate future taxes to pay off the debt, so they increase their savings to offset the expected future tax burden.

When the Deficit Increases Under the Concept of Ricardian Equivalence