China's government runs a budget surplus. As a result,
A) saving will exceed investment.
B) the Ricardo-Barro effect predicts that the real interest rate will increase.
C) the quantity of loanable funds decreases.
D) interest rates should increase.
E) if there is no Ricardo-Barro effect, the supply of loanable funds curve lies to the right of the private supply of loanable funds curve.

Question

Quizplus · Accepted Answer

A budget surplus means the government is saving more than it is spending, increasing the overall supply of loanable funds. Without the Ricardo-Barro effect, this surplus shifts the supply curve of loanable funds to the right, indicating an increase in available funds for lending.

China's Government Runs a Budget Surplus