Match List-I (view about government deficits and debt) with List-II (…

Match List-I (view about government deficits and debt) with List-II (its meaning):

List-I		List-II
(A)	Ricardian equivalence	(I)	Purchasing power remains within the nation
(B)	‘We owe it to ourselves’	(II)	People save more in the face of high deficits
(C)	Crowding out	(III)	Taxes raised later to repay bonds fall on the young who have just entered the work force
(D)	Burden on future generations	(IV)	Government borrowing leaves smaller funds for private borrowers

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 2

The correct answer is Option (2) → (A) - (II), (B) - (I), (C) - (IV), (D) - (III)

These are four views on government borrowing and debt.

List-I	List-II	Reason
(A) Ricardian equivalence	(II) People save more in the face of high deficits	Forward-looking people expect higher future taxes, so they save more now.
(B) ‘We owe it to ourselves’	(I) Purchasing power remains within the nation	Debt held by our own people moves resources between generations but stays in the nation.
(C) Crowding out	(IV) Government borrowing leaves smaller funds for private borrowers	Government bonds compete for savings, so private borrowers get less.
(D) Burden on future generations	(III) Taxes raised later to repay bonds fall on the young who have just entered the work force	Bonds repaid by later taxes cut the young workers’ disposable income.

NCERT (2026-27): “Perspectives on the Appropriate Amount of Government Debt: … This is because it borrows by issuing bonds to the people living at present but may decide to pay off the bonds some twenty years later by raising taxes. These may be levied on the young population that have just entered the work force, whose disposable income will go down and hence consumption. …”

“This view is called Ricardian equivalence after one of the greatest nineteenth century economists, David Ricardo, who first argued that in the face of high deficits, people save more. …”

“It has often been argued that ‘debt does not matter because we owe it to ourselves’. This is because although there is a transfer of resources between generations, purchasing power remains within the nation. …”

“… If some private savers decide to buy bonds, the funds remaining to be invested in private hands will be smaller. Thus, some private borrowers will get ‘crowded out’ of the financial markets as the government claims an increasing share of the economy’s total savings. …”