9) If there is no Ricardo-Barro efect, a government budget surplus ________ the total supply
of loanable funds and ________ the real interest rate.
A) increases; raises
B) increases; lowers
C) decreases; raises
D) decreases; lowers
E) does not change; does not change
Skill: Level 2: Using deinitions
Section: Checkpoint 10.3
Status: Old
AACSB: Relective thinking
10) With no Ricardo-Barro efect, a government budget surplus
A) decreases the supply of loanable funds and lowers the real interest rate.
B) decreases the demand for loanable funds and increases the real interest rate.
C) increases the demand for loanable funds and lowers the real interest rate.
D) increases the supply of loanable funds and lowers the real interest rate.
E) increases the demand for loanable funds and raises the real interest rate.
Skill: Level 2: Using deinitions
Section: Checkpoint 10.3
Status: Old
AACSB: Relective thinking
11) Suppose the government has a budget surplus of $2 billion. If there is no Ricardo-Barro
efect, what occurs?
A) The supply of loanable funds curve shifts rightward, lowering the interest rate, and
increasing investment.
B) The demand for loanable funds curve shifts rightward, raising the interest rate, and
increasing investment.
C) The supply of loanable funds curve shifts leftward, raising the interest rate, and
decreasing investment.
D) The demand for loanable funds curve shifts leftward, lowering the interest rate, and
decreasing investment.
E) The supply of loanable funds curve shifts leftward, lowering the interest rate, and
increasing investment.
Skill: Level 3: Using models
Section: Checkpoint 10.3
Status: Old
AACSB: Relective thinking
61
12) China’s government runs a budget surplus. As a result,
A) if there is no Ricardo-Barro efect, the supply of loanable funds curve lies to the right of
the private supply of loanable funds curve.
B) interest rates should increase.
C) the Ricardo-Barro efect predicts that the real interest rate will increase.
D) the quantity of loanable funds decreases.
E) saving will exceed investment.
Skill: Level 3: Using models
Section: Checkpoint 10.3
Status: Old
AACSB: Relective thinking
13) India’s government runs a government budget surplus. If there is no Ricardo-Barro
efect, the surplus means that the
A) private supply of loanable funds curve lies to the left of the supply of loanable funds
curve.
B) private demand for loanable funds curve lies to the left of the demand for loanable funds
curve.
C) private supply of loanable funds curve lies to the right of the supply of loanable funds
curve.
D) private supply of loanable funds curve is the same as the supply of loanable funds curve.
E) None of the above answers is correct.
Skill: Level 3: Using models
Section: Checkpoint 10.3
Status: Old
AACSB: Relective thinking
14) If there is no Ricardo-Barro efect, when the government runs a budget surplus, it
A) competes with businesses for private saving.
B) shifts the supply of loanable funds curve leftward.
C) shifts the demand for loanable funds curve leftward.
D) contributes to inancing investment.
E) shifts the demand for loanable funds curve rightward.
Skill: Level 2: Using deinitions
Section: Checkpoint 10.3
Status: Old
AACSB: Relective thinking
62
15) If there is no Ricardo-Barro efect, a government budget surplus ________ the supply of
loanable funds and ________ equilibrium investment.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
E) does not change; does not change
Skill: Level 3: Using models
Section: Checkpoint 10.3
Status: Old
AACSB: Relective thinking
16) The table above gives a nation‘s investment demand and saving supply schedules. It
also has the government’s net taxes and expenditures. The government has a budget
A) surplus of $60 billion.
B) surplus of $20 billion.
C) deicit of $20 billion.
D) deicit of $60 billion.
E) surplus of $40 billion.
Skill: Level 3: Using models
Section: Checkpoint 10.3
Status: Old
AACSB: Analytical thinking
63
17) The table above gives a nation‘s investment demand and saving supply schedules. It
also has the government’s net taxes and expenditures. When the real interest rate is 4
percent, the supply of loanable funds is equal to
A) $80 billion.
B) $30 billion.
C) $50 billion.
D) $90 billion.
E) $10 billion.
Skill: Level 3: Using models
Section: Checkpoint 10.3
Status: Old
AACSB: Analytical thinking
18) The table above gives a nation‘s investment demand and saving supply schedules. It
also has the government’s net taxes and expenditures. The loanable funds market is in
equilibrium when the real interest rate is
A) 4 percent.
B) 5 percent.
C) 6 percent.
D) 7 percent
E) 3 percent
Skill: Level 3: Using models
Section: Checkpoint 10.3
Status: Old
AACSB: Analytical thinking
64
19) In the igure above, the SLF curve is the supply of loanable funds curve and the PSLF
curve is the private supply of loanable funds curve. Given these curves, there is a
government budget ________ and therefore the real interest rate is ________ than it would be
otherwise.
A) surplus; higher
B) surplus; lower
C) deicit; higher
D) deicit; lower
E) deicit; not diferent
Skill: Level 3: Using models
Section: Checkpoint 10.3
Status: Old
AACSB: Analytical thinking
20) In the igure above, the SLF curve is the supply of loanable funds curve and the PSLF
curve is the private supply of loanable funds curve. The equilibrium interest rate is ________
percent and the equilibrium quantity of loanable funds is ________.
A) 6; $1.6 trillion
B) 6; $2.0 trillion
C) 4; $1.4 trillion
D) 4; $1.8 trillion
E) 4; $2.0 trillion
Skill: Level 3: Using models
Section: Checkpoint 10.3
Status: Old
AACSB: Analytical thinking
65
21) In the igure above, the SLF curve is the supply of loanable funds curve and the PSLF
curve is the private supply of loanable funds curve. If there is no Ricardo-Barro efect and
the government now runs a balanced budget,
A) the interest rate will increase from 4 percent to 6 percent.
B) the equilibrium interest rate is 6 percent and investment is $1.6 trillion.
C) the equilibrium interest rate is 4 percent and investment is $1.8 trillion.
D) there is a surplus of investment funds and the interest rate falls to 4 percent.
E) there is shortage of investment funds of $0.4 trillion.
Skill: Level 4: Applying models
Section: Checkpoint 10.3
Status: Old
AACSB: Analytical thinking
22) In the igure above, the SLF curve is the supply of loanable funds curve and the PSLF
curve is the private supply of loanable funds curve. If there is no Ricardo-Barro efect, the
igure shows a situation in which the government has a budget
A) surplus of $0.2 trillion.
B) deicit of $0.2 trillion.
C) surplus of $1.4 trillion.
D) deicit of $1.6 trillion.
E) surplus of $1.8 trillion.
Skill: Level 3: Using models
Section: Checkpoint 10.3
Status: Old
AACSB: Analytical thinking
23) In the igure above, if there is no Ricardo-Barro efect, the government has a ________
because ________.
A) budget surplus; the SLF curve lies to the right of the PSLF curve.
B) budget deicit; the SLF curve lies to the right of the PSLF curve.
C) balanced budget; there is no Ricardo-Barro efect.
D) budget surplus; there is no Ricardo-Barro efect.
E) budget deicit; there is no Ricardo-Barro efect.
Skill: Level 3: Using models
Section: Checkpoint 10.3
Status: New
AACSB: Analytical thinking
66
24) In the igure above, if there is no Ricardo-Barro efect, the government has a budget
________ because the ________.
A) surplus of 0.2 trillion; SLF curve lies to the right of the PSLF curve.
B) surplus of 0.4 trillion; SLF curve shows a larger quantity of LF than the PSLF curve.
C) deicit of 0.2 trillion; SLF curve lies to the right of the PSLF curve.
D) deicit of 0.4 trillion; SLF curve shows a smaller quantity of LF than the PSLF curve.
E) surplus of -0.2 trillion; SLF curve lies to the right of the PSLF curve.
Skill: Level 3: Using models
Section: Checkpoint 10.3
Status: New
AACSB: Analytical thinking
25) In the igure above, the SLF curve is the supply of loanable funds curve and the PSLF
curve is the private supply of loanable funds curve. The equilibrium interest rate is ________
percent and the equilibrium quantity of loanable funds is ________.
A) 6; $12 trillion
B) 6; $14 trillion
C) 4; $13 trillion
D) 4; $11 trillion
E) 4; $14 trillion
Skill: Level 3: Using models
Section: Checkpoint 10.3
Status: Old
AACSB: Analytical thinking
67
26) In the igure 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
efect, the igure shows a situation in which the government has a budget
A) deicit of $1 trillion.
B) surplus of $1 trillion.
C) deicit of $0.5 trillion.
D) deicit of $1.5 trillion.
E) surplus of $0.5 trillion.
Skill: Level 4: Applying models
Section: Checkpoint 10.3
Status: Old
AACSB: Analytical thinking
27) In the igure 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
efect, the igure 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 surplus; 4 percent; $1 trillion
B) budget deicit; 4 percent; $1 trillion
C) budget deicit; 6 percent; $1.5 trillion
D) budget surplus; 6 percent; $1.5 trillion
E) balanced budget; 6 percent; $1.5 trillion
Skill: Level 4: Applying models
Section: Checkpoint 10.3
Status: Old
AACSB: Analytical thinking
68
28) If there is no Ricardo-Barro efect, a government budget deicit increases
A) private savings and raises the real interest rate.
B) the supply of loanable funds and raises the real interest rate.
C) the demand for loanable funds and raises the real interest rate.
D) investment demand and lowers the real interest rate.
E) private savings and lowers the real interest rate.
Skill: Level 2: Using deinitions
Section: Checkpoint 10.3
Status: Old
AACSB: Analytical thinking
29) The crowding-out efect is the tendency for
A) lower private saving to decrease investment.
B) higher government budget deicits to increase total savings.
C) higher government budget deicits to decrease investment.
D) higher private savings to decrease government budget surpluses.
E) lower private saving to increase the budget deicit.
Skill: Level 2: Using deinitions
Section: Checkpoint 10.3
Status: Old
AACSB: Relective thinking
30) The tendency for higher government budget deicits to decrease investment is called
the
A) deicit efect.
B) Ricardo-Barro efect.
C) wealth efect.
D) crowding-out efect.
E) inlation efect.
Skill: Level 2: Using deinitions
Section: Checkpoint 10.3
Status: Old
AACSB: Relective thinking
69
31) The crowding-out efect implies that a government budget deicit ________ 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
Skill: Level 2: Using deinitions
Section: Checkpoint 10.3
Status: Old
AACSB: Relective thinking
32) If there is no Ricardo-Barro efect, an increase in the budget deicit
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.
Skill: Level 3: Using models
Section: Checkpoint 10.3
Status: Old
AACSB: Relective thinking
33) The crowding-out efect describes how a government budget ________ ________ the real
interest rate and thereby ________ equilibrium investment.
A) deicit; raises; decreases
B) deicit; lowers; increases
C) surplus; raises; decreases
D) surplus; lowers; decreases
E) deicit; lowers; decreases
Skill: Level 2: Using deinitions
Section: Checkpoint 10.3
Status: Old
AACSB: Relective thinking
70