Suppose the Government Has a Budget Surplus of $2 Billion

question 176

Multiple Choice

Suppose the government has a budget surplus of $2 billion.If there is no Ricardo-Barro effect, what occurs?

• A) The supply of loanable funds curve shifts rightward, lowering the interest rate, and increasing investment.
• B) The demand for loanable funds curve shifts rightward, raising the interest rate, and increasing investment.
• C) The supply of loanable funds curve shifts leftward, raising the interest rate, and decreasing investment.
• D) The demand for loanable funds curve shifts leftward, lowering the interest rate, and decreasing investment.
• E) The supply of loanable funds curve shifts leftward, lowering the interest rate, and increasing investment.

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Definitions:

Book Value

The net value of a company's assets as recorded on the balance sheet, calculated by subtracting liabilities from the total value of assets.

Commercial Substance

Commercial substance refers to a transaction that causes a significant change in the cash flows of a company or significantly alters the entity's operations.

Trade-in Allowance

The credit a buyer receives when they trade in an old asset (like a car) towards the purchase of a new asset, reducing the price of the new purchase.

Book Value

The net value of a company's assets as listed on the balance sheet, calculated by subtracting liabilities from total assets.