The Recardian Equivalence Hypothesis asserts that government deficit spending funded by borrowing:

ASignificantly increases current aggregate demand

BPermanently lowers interest rates

CHas no net impact on aggregate demand because taxpayers anticipate future tax increases to pay off debt

DEliminates national debt completely

Explanation

David Ricardo (and Barro) argued consumers save their tax cuts to meet future tax obligations, rendering bond-financed deficit spending neutral.

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