Question :
31) The crowding-out effect describes how a government budget ________ : 1227794
31) The crowding-out effect describes how a government budget ________ ________ the real interest rate and thereby ________ equilibrium investment.
A) deficit; raises; decreases
B) deficit; lowers; increases
C) surplus; raises; decreases
D) surplus; lowers; decreases
E) deficit; lowers; decreases
32) Suppose the government’s budget deficit increases by $500 billion. If there is no Ricardo-Barro effect, what occurs?
A) The demand for loanable funds curve shifts rightward, the real interest rate rises, and the quantity of loanable funds increases.
B) The supply of loanable funds curve shifts leftward, the real interest rate rises, and the quantity of loanable funds decreases.
C) The demand for loanable funds curve shifts leftward, the real interest rate falls, and the quantity of loanable funds decreases.
D) The supply of loanable funds curve shifts rightward, the real interest rate falls, and the quantity of loanable funds increases.
E) The supply of loanable funds curve shifts leftward, the real interest rate rises, and the quantity of loanable funds increases.
33) A country initially has an equilibrium real interest rate of 4 percent and an equilibrium quantity of investment of $2 trillion. The government’s budget deficit then increases. According to the crowding-out effect, the
A) demand for loanable funds curve shifts leftward, the real interest rate falls, and investment increases.
B) supply of loanable funds curve shifts rightward, the real interest rate rises, and investment increases.
C) demand for loanable funds curve shifts rightward, the real interest rate falls, and investment increases.
D) demand for loanable funds curve shifts rightward, the real interest rate rises, and investment decreases.
E) supply of loanable funds curve shifts leftward, the real interest rate falls, and investment decreases.
34) Suppose the government has a budget deficit of $2 billion. If there is no Ricardo-Barro effect, how much crowding out of investment occurs?
A) more than $2 billion
B) some crowding out occurs, but less than $2 billion
C) exactly equal to $2 billion dollars
D) No crowding out occurs and investment does not change.
E) No crowding out occurs because investment increases.
35) According to the Ricardo-Barro effect, a government budget
A) surplus increases private saving supply.
B) deficit increases private saving supply.
C) deficit decreases private saving supply.
D) surplus decreases private investment demand.
E) deficit decreases private investment demand.
36) According to the Ricardo-Barro effect, an increase in the government budget deficit
A) does not change the real interest rate.
B) lowers the real interest rate.
C) shifts the supply of loanable funds curve leftward.
D) has no effect on the nominal interest rate but does change the real interest rate.
E) shifts the demand for loanable funds curve leftward.
37) The Ricardo-Barro effect refers to how ________ in response to a government budget ________.
A) investment demand changes; surplus
B) investment demand changes; deficit
C) saving supply changes; deficit
D) government budget changes; surplus or deficit
E) investment demand and saving supply change; surplus
38) A prediction of the Ricardo-Barro effect is
A) a larger increase in the real interest rate when the government runs a budget deficit.
B) a larger decrease in the real interest rate when the government runs a budget surplus.
C) no effect on the real interest rate when the government runs a budget deficit.
D) a larger decrease in investment when the government runs a budget deficit.
E) a larger decrease in investment when the government runs a budget surplus.
39) The Ricardo-Barro effect argues that the crowding-out effect
A) is the result of a government budget surplus and higher interest rates.
B) will not occur, because the private saving supply will change to offset any change in the government budget deficit.
C) is the result of the government budget deficit and higher interest rates.
D) will occur, because the private saving supply will change to offset any change in the government budget deficit.
E) is stronger when the government runs a budget surplus than when it runs a budget deficit.
40) The Ricardo-Barro effect is based on the idea that ________ when the government has a budget deficit.
A) people decrease their private saving
B) people increase their private saving
C) investment demand increases because expected future profits increase
D) investment demand decreases because of the higher real interest rate
E) people immediately increase their tax payments
