All else equal, Ricardian equivalence predicts that people in an economy will have a low _______ in response to a tax cut.
A) marginal propensity to consume
B) willingness to supply labor
C) marginal propensity to save
D) willingness to vote

Question

Quizplus · Accepted Answer

Ricardian equivalence suggests that people anticipate future taxes to pay off government debt, so they save rather than spend a tax cut, leading to a low marginal propensity to consume.

All Else Equal, Ricardian Equivalence Predicts That People in an Economy