Quiz #118 answers

• 1. Assume that a nation is continuously running an external deficit of 2 per cent of GDP. In this economy, if the private domestic sector successfully saves overall, we would find:

Answer: A budget deficit

• 2. Public bonds constitute private wealth. Accordingly, private net worth rises if the government issues bonds to match its deficit spending.

Answer: False

• 3. A central bank would not be able to directly purchase Treasury debt to facilitate a national government's budget deficit while still targeting a non-zero policy rate.

Answer: False

• 4. While budget deficits rise due to the operation of the automatic stabilisers, as growth resumes, the automatic stabilisers work in a counter-cyclical fashion to ensure that the government budget balance returns to its appropriate level.

Answer: False

• 5: Premium Question: A government wanting to reduce their unemployment rates after a deep recession should use expansionary fiscal policy to ensure real GDP growth gets back on trend.

Answer: False