-In the Figure Above, If There Is No Ricardo-Barro Effect

question 19

Multiple Choice

-In the figure above, if there is no Ricardo-Barro effect, the government has a budget ________ because the ________.

• A) deficit of 0.4 trillion; SLF curve shows a smaller quantity of LF than the PSLF curve.
• B) surplus of 0.2 trillion; SLF curve lies to the right of the PSLF curve.
• C) deficit of 0.2 trillion; SLF curve lies to the right of the PSLF curve.
• D) surplus of -0.2 trillion; SLF curve lies to the right of the PSLF curve.
• E) surplus of 0.4 trillion; SLF curve shows a larger quantity of LF than the PSLF curve.

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Definitions:

Incorrect Pricing

A situation where securities are valued incorrectly by the market, potentially offering opportunities for profit.

Representativeness Bias

The tendency to believe that a small sample is reliably representative of a broad population and therefore to infer patterns too quickly.

Over Reliance

The excessive dependence on a particular element, such as a specific resource, technology, or entity, which can lead to vulnerabilities.

Trading Costs

Expenses associated with the buying and selling of assets in financial markets, including commissions, spreads, and slippage.