The implication of Ricardian equivalence is that,if the government increases expenditures without increasing taxes,the increase in government expenditures will be:
A)at least partially offset by a reduction in consumer spending.
B)enhanced by an increase in consumer spending.
C)more than offset by a reduction in firm spending.
D)enhanced by the multiplier effect.
E)none of the above

Question

Quizplus · Accepted Answer

Ricardian equivalence suggests that individuals will anticipate the future tax increases required to pay for current government expenditures and adjust their behavior accordingly. As a result, they will increase their savings or reduce their consumption, partially offsetting the increase in government expenditures. Therefore, an increase in government expenditures without an increase in taxes will be at least partially offset by a reduction in consumer spending.

The Implication of Ricardian Equivalence Is That,if the Government Increases