Question

Ricardian equivalence:

a. occurs when people see that lower taxes today means higher taxes in the future, so instead of spending their tax cut, they save it to pay future taxes.
b. is the decrease in private spending that occurs when government increases spending.
c. is federal government policy on taxes, spending, and borrowing that is designed to influence business fluctuations.
d. is central bank policy on the monetary base, interest rates, and bank reserves that is designed to influence business fluctuations.

Answer 1

Ricardian equivalence:

a. Occurs when people see that lower taxes today means higher taxes in the future, so instead of spending their tax cut, they save it to pay future taxes.

Step-by-step explanation:

The Ricardian equivalence is a theory given by the English economist David Ricardo in the 19th century, where he suggests that the fiscal deficit (when the nation spends more than obtain) doesn't affect the aggregate demand (the possibility of the country to acquire products) by two reasons:

1. Finances the spend with more high taxes, it could occur in the present or in the future, but if the people see that the taxes are low and the country is spending, they save money for the future higher taxes.

2. increasing external debt.