Final answer:
The accounting equation will always remain true after any transaction, provided changes in assets, liabilities, or shareholder's equity are counterbalanced. Examples from national saving and investment identity and Ricardian equivalence illustrate similar principles of balancing equations in financial contexts.
Step-by-step explanation:
The accounting equation (A = L + SE) will remain true after any given transaction that respects the fundamental rule that the total amount of assets (A) must always equal the combined total of liabilities (L) and shareholder's equity (SE). This balance reflects the basic accounting principle that a company's resources (assets) are financed by debts (liabilities) or the money invested by owners (shareholder's equity).
For instance, when the government budget deficit changes, to maintain the accounting equation, there must be an offsetting change in private saving, investment, or the trade balance. This is akin to the national saving and investment identity, which asserts that changes in any part of the equation must be counterbalanced by changes in the other parts, ensuring the equation always holds true. This concept is exemplified further in what is known as Ricardian equivalence, where a change in government budget (G - T) is countered exactly by a change in private saving (S), leaving the other terms of the national saving and investment identity unchanged.
Therefore, the accounting equation balances not just in theory but in every single financial transaction that occurs within a business, underscoring the discipline required in thinking about the supply and demand of the financial capital market before making any calculations.