The tendency for private saving to increase in response to growing government deficits is known as the

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The tendency for private saving to increase in response to growing government deficits is known as the Ricardo-Barro effect. This effect is based on the idea that individuals, realizing that government borrowing will eventually lead to higher taxes or reduced government benefits, will increase their savings in order to prepare for the future tax burdens. This effect was named after economists David Ricardo and Robert Barro. Choice A (crowding out effect) refers to the decrease in private investment due to government borrowing, Choice B (Keynes effect) is not a commonly used term in economics, and Choice C (money illusion effect) refers to individuals confusing nominal changes in prices or wages with real changes.

The Tendency for Private Saving to Increase in Response to Growing