IGNOU BECC 109 2025 2026 - Explain the major insights from the Ricardian equivale

Question

Explain the major insights from the Ricardian equivalence proposition.

02 Mar 2026

Answer :

Word Count : 169

The Ricardian equivalence proposition, associated with classical macroeconomic theory, suggests that government borrowing does not affect aggregate demand because rational consumers anticipate future tax liabilities. When the government increases deficit spending by issuing debt, households expect that future taxes will rise to repay the debt. As a result, they increase their current savings instead of increasing consumption. This behavior

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