Quiz #103

• 1. A program of fiscal austerity may not undermine attempts by the private domestic sector to reduce its indebtedness.
• False
• True
• 2. The public debt ratio is of no concern because it falls once economic growth resumes.
• False
• True
• 3. The money multiplier is in fact more correctly considered to be a divisor relating the monetary base to the money supply.
• False
• True
• 4. Only one of the following propositions is possible (with all balances expressed as a per cent of GDP):
• A nation can run a current account deficit accompanied by a government sector surplus of equal proportion to GDP, while the private domestic sector is spending less than they are earning.
• A nation can run a current account deficit accompanied by a government sector surplus of equal proportion to GDP, while the private domestic sector is spending more than they are earning.
• A nation can run a current account deficit with a government sector surplus that is larger, while the private domestic sector is spending less than they are earning.
• None of the above are possible as they all defy the sectoral balances accounting identity.
• 5. Premium Question: The expansionary impact of deficit spending on aggregate demand is lower when the government matches the deficit with debt-issuance compared to a situation when it issued no debt.
• False
• True

Quiz #103 answers

• 1. A program of fiscal austerity may not undermine attempts by the private domestic sector to reduce its indebtedness.

Answer: True

• 2. The public debt ratio is of no concern because it falls once economic growth resumes.

Answer: False

• 3. The money multiplier is in fact more correctly considered to be a divisor relating the monetary base to the money supply.

Answer: True

• 4. Only one of the following propositions is possible (with all balances expressed as a per cent of GDP):

Answer: A nation can run a current account deficit accompanied by a government sector surplus of equal proportion to GDP, while the private domestic sector is spending more than they are earning.

• 5. Premium Question: The expansionary impact of deficit spending on aggregate demand is lower when the government matches the deficit with debt-issuance compared to a situation when it issued no debt.

Answer: False