In the Absence of the Ricardo-Barro Effect, an Increase in the Government

question 155

Multiple Choice

In the absence of the Ricardo-Barro effect, an increase in the government deficit results in a ________ real interest rate and a ________ equilibrium quantity of investment.

• A) higher; higher
• B) higher; lower
• C) lower; higher
• D) lower; lower

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Definitions:

Capital Gains

The profit from the sale of an asset or investment, where the sale price exceeds the purchase price.

Price Appreciation

An increase in the market value of an asset over time, often influenced by factors such as demand, inflation, and market conditions.

Risky Securities

Financial instruments that carry a high degree of investment risk due to the potential for significant fluctuations in value.

Riskless Securities

Financial instruments that are considered to have minimal risk of loss, typically issued by governments.