-In the figure above, the DLF curve is the demand for loanable funds curve and the PDLF curve is the private demand for loanable funds curve. If there is no Ricardo-Barro effect, the figure shows the situation in which the government has a ________ so that the equilibrium real interest rate is ________ and the equilibrium quantity of investment is ________.
A) budget deficit; 4 per cent; $1 trillion
B) budget surplus; 6 per cent; $1.5 trillion
C) budget deficit; 6 per cent; $1.5 trillion
D) balanced budget; 6 per cent; $1.5 trillion
E) budget surplus; 4 per cent; $1 trillion

Question

-In the figure above, the DLF curve is the demand for loanable funds curve and the PDLF curve is the private demand for loanable funds curve. If there is no Ricardo-Barro effect, the figure shows the situation in which the government has a ________ so that the equilibrium real interest rate is ________ and the equilibrium quantity of investment is ________.
A) budget deficit; 4 per cent; $1 trillion 
B) budget surplus; 6 per cent; $1.5 trillion 
C) budget deficit; 6 per cent; $1.5 trillion 
D) balanced budget; 6 per cent; $1.5 trillion 
E) budget surplus; 4 per cent; $1 trillion

Quizplus · Accepted Answer

The absence of the Ricardo-Barro effect implies that government borrowing increases the demand for loanable funds, leading to a higher equilibrium real interest rate and quantity of investment.

-In the Figure Above, the DLF Curve Is the Demand