Question

Ricardian equivalence means that: A. changes in private savings offset any changes in the government deficit....

Ricardian equivalence means that:

A. changes in private savings offset any changes in the government deficit.

B. changes in exports offset any changes in the government deficit.

C. changes in imports offset any changes in the government deficit.

D. changes in investment offset any changes in the government deficit.

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Answer #1

Answer:- A. Changes in private savings offset any chaqnge in government deficit.

Ricardian equivalence theory which stated that when the government tries to boost the economy by increasing government spending is likely to get fail as the demand remained unaffected. This theory argues that the consumers are likely to save more so as to pay for the taxes which will be levied on them in the future in order to offset the current debt. The consumer who gets the benefit debt financing of the government knows that the current gain is just temporary and not long term income thus they tend to save more for future financing.

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