The Ricardo-Barro effect of a government budget deficit refers to
A) a large crowding out effect from a government budget surplus.
B) a large crowding out effect from a government budget deficit.
C) a change in private savings supply.
D) the international impact of government deficits.

Question

Quizplus · Accepted Answer

The Ricardo-Barro effect suggests that when the government runs a budget deficit, individuals anticipate future taxes to pay off the debt, leading them to increase their savings, which offsets the deficit's impact on the economy.

The Ricardo-Barro Effect of a Government Budget Deficit Refers to