Ricardian equivalence requires that saving by the private sector decreases when the deficit increases.

Name: Ricardian equivalence requires that saving by the private sector decreases when the deficit increases.
Brand: Quizplus
Rating: 4.9 (40 reviews)

Question

Quizplus · Accepted Answer

Ricardian equivalence theory suggests that when the government increases its deficit spending, people anticipate future taxes, and thus save more in the present to offset the future tax burden. Therefore, saving by the private sector increases when the deficit increases, rather than decreases.

Ricardian Equivalence Requires That Saving by the Private Sector Decreases