Question : 31) The crowding-out effect implies that a government budget deficit : 1238012

31) The crowding-out effect implies that a government budget deficit ________ the demand for loanable funds and ________ equilibrium investment.

A) increases; increases

B) increases; decreases

C) decreases; increases

D) decreases; decreases

E) does not change; does not change

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

A) decreases the amount of investment.

B) lowers the equilibrium real interest rate.

C) increases the amount of investment.

D) decreases the demand for loanable funds.

E) increases the supply of loanable funds.

33) 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

34) 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.

35) 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.

36) 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.

37) 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.

38) 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.

39) 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

40) 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.