If the Ricardo-Barro effect occurs, ________ in private saving finances the government budget deficit, and the real interest rate ________.

Question

Quizplus · Accepted Answer

The Ricardo-Barro effect occurs when people anticipate future taxes from the government to pay off the government deficit. As a result, private saving increases to finance the government deficit. This increase in private saving will put downward pressure on interest rates, which will remain the same as a result of increased loanable funds.

If the Ricardo-Barro Effect Occurs, ________ in Private Saving Finances