Suppose the government has a budget surplus of $2 billion.If there is no Ricardo-Barro effect,what occurs?

Question

Quizplus · Accepted Answer

A budget surplus means that the government is taking in more revenue than it is spending. This means that the government is reducing its borrowing needs, which shifts the supply of loanable funds curve to the right. This shift will lead to a decrease in the interest rate and an increase in investment. The Ricardo-Barro effect refers to the idea that if individuals expect future tax increases to pay for current government spending, they may save more and reduce investment, but this effect is not relevant in this scenario.

Suppose the Government Has a Budget Surplus of $2 Billion