The Ricardo-Barro Effect Argues That the Crowding-Out Effect

question 41

Multiple Choice

The Ricardo-Barro effect argues that the crowding-out effect

• A) is stronger when the government runs a budget surplus than when it runs a budget deficit.
• B) is the result of a government budget surplus and higher interest rates.
• C) is the result of the government budget deficit and higher interest rates.
• D) will occur, because the private saving supply will change to offset any change in the government budget deficit.
• E) will not occur, because the private saving supply will change to offset any change in the government budget deficit.

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Definitions:

Tariff

A tax imposed on imported goods and services to increase their price and make domestic products more competitive.

U.S. Market

This term refers to the economic market in the United States encompassing the trading of goods, services, securities and commodities.

Comparative Advantage

The ability of a country or firm to produce a particular good or service at a lower opportunity cost than others.