A key assumption of Ricardian equivalence is:
A) the permanent-income hypothesis
B) the life-cycle hypothesis
C) adaptive expectations
D) independent monetary policy
E) None of these answers are correct.

Question

Quizplus · Accepted Answer

Ricardian equivalence assumes that individuals base their consumption decisions on their long-term income expectations rather than the short-term changes in income. This aligns with the permanent-income hypothesis, which states that individuals adjust their consumption based on long-term average income rather than short-term fluctuations.

A Key Assumption of Ricardian Equivalence Is