The Ricardo- Barro effect of a government budget deficit refers to

Question

Quizplus · Accepted Answer

The Ricardo-Barro effect refers to the idea that government deficits do not necessarily lead to lower interest rates and increased investment, as predicted by Keynesian theory. Instead, the effect suggests that an increase in government deficits will lead to an increase in private savings supply, as individuals save more to prepare for expected future tax increases needed to pay off the deficit. This increased savings supply can offset the potential effect of the deficit on interest rates and investment. Therefore, choice B (a change in private savings supply) is the best answer.

The Ricardo- Barro Effect of a Government Budget Deficit Refers