According to the Ricardo-Barro effect, what is the effect on the real interest rate of a government budget surplus?
What will be an ideal response?
The government budget surplus, by itself, increases the supply of loanable funds. However the Ricardo-Barro effect asserts that people decrease their private saving by the exactly same amount. This change precisely offsets the effect the government budget surplus has on the supply of loanable funds. Thus a government surplus has no effect on the equilibrium real interest rate.
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Expenditures in GDP do not include
A) used goods or financial assets. B) financial assets or investment. C) used goods or investment. D) investment, stocks, or bonds. E) government expenditures on goods and services.
An incumbent firm uses limit pricing
A) to set price below a potential rival's marginal cost, thus making entry unprofitable. B) to set one price for a quantity of a good below a certain limit, and a second price for purchases above the limit. C) when it has no other advantages over a potential rival. D) if it is limited in the quantity of inputs it can purchase to produce output.