If there is no Ricardo-Barro effect, the government
A) only affects the demand for loanable funds curve in the loanable funds market.
B) has no effect because private saving changes to offset the effect that the government's budget deficit or surplus might otherwise have.
C) plays no direct role in the loanable funds market because it doesn't affect either the demand for loanable funds or the supply of loanable funds.
D) increases the supply of loanable funds if it has a budget surplus and shifts the supply of loanable funds curve.
E) always has negative saving and therefore lowers the real interest rate.
D
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Ricardian equivalence argues that when the government
A) increases taxes and raises its deficit, consumers anticipate that they will face higher taxes later to pay for the resulting government debt, thus people will raise their own private saving to offset the fall in government saving. B) cuts taxes and decreases its deficit, consumers anticipate that they will face higher taxes later to pay for the resulting government debt, thus people will raise their own private saving to offset the fall in government saving. C) cuts taxes and raises its surplus, consumers anticipate that they will face higher taxes later to pay for the resulting government debt, thus people will raise their own private saving to offset the fall in government saving. D) cuts taxes and raises its deficit, consumers anticipate that they will face lower taxes later to pay for the resulting government debt, thus people will raise their own private saving to offset the fall in government saving. E) cuts taxes and raises its deficit, consumers anticipate that they will face higher taxes later to pay for the resulting government debt, thus people will raise their own private saving to offset the fall in government saving.
A temporary negative supply shock ________ real interest rates and ________ output in the short run, thereby its effect on stock prices is ________
A) raises; lowers; negative B) raises; raises; ambiguous C) lowers; raises; negative D) lowers; raises; positive