1. If a nation records an external balance (net exports equal zero) then the government can safely run a balanced public budget without undermining the capacity of the private domestic sector to save overall.

Answer: False

2. If the external sector is in deficit overall and GDP growth rate is lower than the real interest rate, then:

Answer: Either the private domestic sector or the government sector overall can pay down their debt liabilities.

3. The standard of living of workers falls if growth in real wages fails to keep pace with labour productivity growth.

Answer: False

4. Rising private domestic saving overall signals the need for an expanding public deficit to avoid employment losses.

Answer: False

5. Premium Question: From the US National Accounts, you find that in 2006, the share of Personal consumption expenditure in real GDP was 69.9 per cent and by 2008 it had fallen to 69.8 per cent. Similarly, the share of Gross private domestic investment on real GDP was 17.2 per cent in 2006 and by 2008 had fallen to 14.9 per cent (and further to 11.8 per cent in 2009). The net export deficit over the same period (2006 to 2008) fell from -5.7 per cent of real GDP to -4.9 per cent in 2008. Finally, the share of Government consumption expenditures and gross investment in real GDP rose from 18.8 per cent in 2006 to 18.9 per cent in 2008 (and 19.7 per cent in 2009). These relative changes confirm that real GDP was lower in 2008 compared to 2006 because the increase in Government spending and the falling negative contribution of net exports were not sufficient to offset the declining contribution from consumption and investment.

Answer: False