The theory of Ricardian equivalence suggests that an increase in public saving will be balanced by an increase in private saving.

Question

Quizplus · Accepted Answer

The theory of Ricardian equivalence suggests that government borrowing does not affect the overall level of savings in an economy because individuals anticipate future taxes to pay off the debt and increase their savings accordingly, not that an increase in public saving will be balanced by an increase in private saving.

The Theory of Ricardian Equivalence Suggests That an Increase in Public