Choose the Statement That Is Incorrect

Multiple Choice

Choose the statement that is incorrect.

A) Most economists believe that the Ricardo- Barro effect holds in the market for loanable funds.
B) According to the Ricardo- Barro effect, the quantity of loanable funds demanded increases when a government budget deficit occurs, and private saving and the private supply of loanable funds increase to match the quantity of loanable funds demanded.
C) The Ricardo- Barro effect does hold that a government budget deficit produces a crowding- out effect.
D) According to the Ricardo- Barro effect, taxpayers are rational people who know that a budget deficit today means that future taxes will be higher and future disposable incomes will be smaller.
E) According to the Ricardo- Barro effect, a budget deficit has no effect on either the real interest rate or investment.