Question : According to David Ricardo, during a high deficit situation taxation and borrowing are ______means of spending.
Option 1: prudent
Option 2: differentiated
Option 3: equivalent
Option 4: subsidised
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Correct Answer: equivalent
Solution : The correct answer is equivalent .
According to the economic theory known as Ricardian equivalence, increasing government deficit spending won't increase demand as intended. In some cases, according to Ricardo, even the financial effects of these can be compared because taxpayers are aware that, even in the case of deficit spending, their taxes will eventually increase to pay off the national debt.
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