If the government's budget deficit increases and the Ricardo-Barro effect does not apply
A) the real interest rate rises.
B) investment increases.
C) investment decreases.
D) Both answers A and C are correct.

Question

Quizplus · Accepted Answer

When the government's budget deficit increases and the Ricardo-Barro effect does not apply, it typically leads to higher real interest rates as the government borrows more, crowding out private investment. Consequently, investment decreases due to the higher cost of borrowing.

If the Government's Budget Deficit Increases and the Ricardo-Barro Effect