If There Is No Ricardo-Barro Effect, a Government Budget Surplus

question 238

Multiple Choice

If there is no Ricardo-Barro effect, a government budget surplus ________ the supply of loanable funds and ________ equilibrium investment.

• A) increases; increases
• B) increases; decreases
• C) decreases; increases
• D) decreases; decreases
• E) does not change; does not change

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Definitions:

Budget Line

A graphical depiction of all possible combinations of two goods that a consumer can afford given their income and the prices of the goods.

Money Income

The total amount of monetary earnings received by an individual or household, including wages, salaries, and investment returns.

Fixed

Relates to assets or costs that do not change with the level of production or business activity in the short term.

Linear

A term describing something arranged in or extending along a straight or nearly straight line.