If Ricardian equivalence holds,fiscal policy has no effect on either inflation or real growth.

Question

Quizplus · Accepted Answer

Ricardian equivalence suggests that individuals are forward-looking and will anticipate future taxes to finance government spending. Therefore, they will increase their savings to offset any temporary increase in disposable income from tax cuts or government spending. As a result, the overall impact of fiscal policy on aggregate demand, inflation and real growth is neutral.

If Ricardian Equivalence Holds,fiscal Policy Has No Effect on Either