In 2012, the U.S. federal government had a budget deficit. If there is no Ricardo-Barro effect, the budget deficit ________ the real interest rate and ________ the equilibrium quantity of investment.
A) lowered; increased
B) raised; increased
C) lowered; decreased
D) raised; decreased
E) did not change; did not change
Question 2
Suppose an economy experiences a permanent increase in its natural unemployment rate. This change leads to
A) a downward movement along the short-run Phillips curve.
B) a leftward shift of the short-run Phillips curve.
C) a rightward shift of the short-run Phillips curve.
D) an upward movement along the short-run Phillips curve.
E) no change in the short-run Phillips curve.
A hypothetical example of the bottleneck effect.
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