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According to the Ricardian Equivalence Theorem, People Increase Savings When

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According to the Ricardian equivalence theorem, people increase savings when the government increases deficits because they recognize the link between government deficits and higher future taxes.


Definitions:

Sales Taxes

Taxes imposed by governments on the sale of goods and services, collected by sellers at the point of sale.

Proportional

Relating to a relationship or ratio between two quantities where they increase or decrease at the same rate.

Progressive Tax System

A taxation system in which the tax rate increases as the taxable amount increases, leading to higher earners paying a larger percentage of their income in taxes than lower earners.

Government Expenditures

The total amount of money spent by the government on various services and projects, including healthcare, education, and infrastructure.

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