According to the Ricardo-Barro effect, an increase in the government budget deficit
A) lowers the real interest rate.
B) has no effect on the nominal interest rate but does change the real interest rate.
C) shifts the demand for loanable funds curve leftward.
D) shifts the supply of loanable funds curve leftward.
E) does not change the real interest rate.
E
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Speculators profit by taking risks, while the actions of arbitrageurs involve no risk
a. True b. False
Over the two decades leading up the 2008 crisis, __________ interest rates meant that consumers could take on _____ debt without significantly increasing the amount of debt service they had to pay.
A. falling; more B. rising; more C. falling; less D. rising; less
Which of the following is NOT a reason why an increase in the interest rate usually makes investment projects less attractive?
A. At a higher rate, future dollars are worth less compared to current dollars. B. A typical investment project incurs the majority of its costs early in its life. C. A typical investment project receives a disproportionate fraction of its revenue early in its life. D. At a higher rate, putting money into the bank is more attractive.
Which of the following best explains the political attractiveness of debt financing relative to taxation?
a. Debt financing pushes the visible cost of government into the future. b. Debt financing exposes the current costs of government programs; taxes do not. c. Debt financing reduces the attractiveness of special-interest spending. d. Taxes allow politicians to supply voters with immediate benefits without having to impose a visible cost.