The Ricardo-Barro effect of a government budget deficit refers to
A) a change in private savings supply.
B) a large crowding out effect from a government budget deficit.
C) a large crowding out effect from a government budget surplus.
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 to offset the expected future tax burden. This change in private savings supply can neutralize the impact of the deficit on interest rates and investment.

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