1. A sovereign national government has to raise tax revenue to allow it to fulfill its political mandate.
Answer: True
2. Assume that the national accounts of a nation is reveal that its external surplus is equivalent to 2 per cent of GDP and the private domestic sector is saving overall 3 per cent of GDP. We would also observe:
Answer: A budget deficit equal to 1 per cent of GDP.
3. While bank lending is capital constrained a further constraint on excess lending would be created by regulators if a 100 per cent reserve ratio (that is, all loans had to be backed by reserves) was imposed.
Answer: False
4. Recipients of income support provided by the national government are living off the hard work of those who pay income taxes.
Answer: True
5. Premium Question: Assume the current public debt to GDP ratio is 100 per cent and that the nominal interest rate and the inflation rate remain constant and zero. Under these circumstances it is impossible to reduce a public debt to GDP ratio, using an austerity package if the rise in the primary surplus to GDP ratio is always exactly offset by negative GDP growth rate of the same percentage value.