The tendency for private saving to increase in response to growing government deficits is known as the
A) crowding out effect.
B) money illusion effect.
C) Keynes effect.
D) Ricardo-Barro effect.

Question

Quizplus · Accepted Answer

The Ricardo-Barro effect, also known as Ricardian equivalence, suggests that when the government increases its borrowing to finance a deficit, individuals will anticipate future taxes to pay off this debt. As a result, they increase their savings to prepare for these future tax increases, offsetting the government's deficit spending.

The Tendency for Private Saving to Increase in Response to Growing