If there is no Ricardo-Barro effect,an increase in the government budget deficit

Question

Quizplus · Accepted Answer

If there is no Ricardo-Barro effect, an increase in the government budget deficit will lead to an increase in demand for loanable funds as the government will need to borrow more money to finance the deficit. This increase in demand for loanable funds will push up the equilibrium real interest rate, making it more expensive for other borrowers to borrow money. Consequently, the equilibrium real interest rate will rise.

If There Is No Ricardo-Barro Effect,an Increase in the Government