Question

In the late​ 1990s, the U.S. federal government had a budget surplus. If there is no Ricardominus−Barro ​effect, the budget surplus​ ________ the real interest rate and​ ________ the equilibrium quantity of investment.

Answer 1

Answer:

the budget surplus​ REDUCES the real interest rate and​ INCREASES the equilibrium quantity of investment.

Explanation:

The Ricardo-Barro effect states that a reduction in government spending or a tax increase, will result in households saving more. So if the government increases its spending rate, household demand will not change.

A budget surplus means that the government spends less than what it receives, so that lowers the amount of money a government may need to borrow. Therefore, the Fed will lower the interest rates which decreases the price of borrowing money. A lower interest rate will increase the quantity demanded for loanable funds. Therefore, the equilibrium price of money decreases while the equilibrium quantity of investments increases.  

Answer 2

Answer:

The correct answer is raised; decreased.

Explanation:

The budget surplus refers to the fiscal surplus foreseen by the Government when making the budgets for the following period, normally one year.

Public administrations have the obligation to make a budget to know what their income and expenses will be in the next year. Therefore, they will know in advance whether or not a State will have a public surplus. The surplus that has been budgeted by the State is known as the budget surplus. Since a country's public surplus is not known until the period has ended, budget and public surplus are often used as synonyms.

The fiscal surplus arises when a public administration manages to raise more money than necessary to meet its expenses. When we speak of the set of public administrations of a country it is known as public surplus, a context in which they can be considered synonyms, since in any case it is related to the general account situation of a public administration.