If There Is No Ricardo-Barro Effect, an Increase in the Government

question 52

Multiple Choice

If there is no Ricardo-Barro effect, an increase in the government budget surplus

• A) increases the supply of loanable funds.
• B) increases private saving.
• C) decreases the supply of loanable funds.
• D) decreases private saving.
• E) has no effect on the demand for loanable funds, the supply of loanable funds, or the real interest rate.

---

Definitions:

Subsidy

A financial contribution granted by a government or organization to support a business, industry, or activity, making it more affordable or viable.

Market Equilibrium

A state in the market where the quantity demanded by consumers equals the quantity supplied by producers, leading to a stable price for a good or service.

Socially Optimal Level

A state in which resources are allocated in the most efficient way possible, maximizing societal welfare or benefit.

Positive Externalities

Benefits experienced by third-parties or the society at large due to an economic activity, not directly involved in the transaction, such as education or vaccination.