How will consumption respond according to the argument

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Reference no: EM132119339

Question: Ricardian equivalence: Suppose that the government fears the economy might be heading into a recession and decides to cut income taxes today in an effort to prevent the recession.

(a) How does the Ricardian equivalence argument apply in this case? How will consumption respond according to this argument?

(b) How will your answer change if some individuals are borrowing constrained?

Reference no: EM132119339

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