Figure shows the market for loanable funds. The government is running a budget surplus of $900 billion.
Question:
a. Show the effect of a $400 billion decrease in the government budget surplus if there is no Ricardo-Barro effect. How much investment is crowded out by the fall in the surplus?
b. How does the Ricardo-Barro effect change the results?
Transcribed Image Text:
SLF DLF 1.6 18 2.0 2 2.4 Loanable funds (trillions of 2002 dollars per year)
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Related Book For
Macroeconomics Canada in the Global Environment
ISBN: 978-0321778109
8th edition
Authors: Michael Parkin, Robin Bade
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