If the Ricardo-Barro effect occurs, an in saving finances the government budget deficit and the real interest rate .
A) decrease; increases
B) decrease; remains the same
C) increase; remains the same
D) increase; falls

Question

Quizplus · Accepted Answer

The Ricardo-Barro effect suggests that when the government runs a budget deficit, individuals increase their savings in anticipation of future taxes needed to pay off the debt. This increased saving offsets the deficit, leaving the real interest rate unchanged.

If the Ricardo-Barro Effect Occurs, an in Saving Finances the Government