What is the Ricardo-Barro effect and how does it modify the crowding-out effect?
What will be an ideal response?
The Ricardo-Barro effect points out that the crowding out effect is less than predicted by looking only at the effect of a budget deficit on the demand for loanable funds. The Ricardo-Barro effect asserts that as a result of a government budget deficit households increase their saving to pay the higher taxes that will be needed in the future to repay the debt issued to fund the deficit. The increase in saving increases the supply of loanable funds. This increase in the supply of loanable funds offsets the rise in the real interest rate from the increase in the demand for loanable funds caused by the budget deficit. Because the real interest rate does not rise as much, the decrease in investment, that is the amount of crowding out, is less in the presence of the Ricardo-Barro effect.
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Total fixed cost is frequently referred to as
a. overhead. b. depreciation. c. opportunity cost. d. marginal cost.
Ralph wants to buy some milk and a box of cereal. If Ralph buys 2 quarts of milk at $1 per quart, the box of cereal costs 75 cents. If he buys 3 quarts of milk at $1 per quart, the box of cereal is free. For Ralph, the marginal cost of the third quart of milk is:
a. zero. b. 25 cents. c. 75 cents. d. $1.
Data suggest that which of the following are necessary for high rates of economic growth?
A) private property rights. B) free markets. C) clear incentives. D) all of these choices.
The long-run aggregate supply curve is _____.
Fill in the blank(s) with the appropriate word(s).