The Ricardo- Barro effect suggests that the government budget deficit has no effect on influence on the real interest rate.
The Ricardo-Barro effect is an theory in economics that suggests that when a government tries to stimulate an economy by increasing debt-financed government spending, the demand remains unchanged.
Deficits increase the demand for loanable funds and surpluses decrease the demand for loanable funds. The indicate that if the government runs a deficit, it has to borrow money just like everyone else.
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