Question

The classical view of public debt and Barro’s

Q: Answer-The classical view of public debt and Barro’s Ricardian equivalence both address debt neutrality/bur...

The mechanisms are opposite. Classical crowding-out is real. Ricardian private saving offsets government dis-saving completely, so nothing changes in the real economy.

Ricardian equivalence both address debt neutrality/burden, but for different reasons. Which pairing is correct?

A Classical view: debt is neutral because rational agents save more today; Barro: debt burdens future generations through lower capital stock

B Classical view: government borrowing crowds out private investment, reducing capital stock and burdening future generations; Barro: debt is neutral because rational, forward-looking households offset the deficit with higher saving

C Classical view: debt is always expansionary through the Keynesian multiplier; Barro: debt is only burdensome when financed externally

D Both views agree that debt imposes a real burden through reduced private capital formation