Quiz #125 answers

• 1. In the recent British riots, a common claim has been that the rioters were unemployed youth on income support benefits who were living off the hard work of those who pay taxes. This claim has validity.

Answer: True

• 2. The automatic stabilisers operate in a counter-cyclical fashion and ensure that the government budget balance, which rises during a recession, returns to its appropriate level once growth resumes.

Answer: False

• 3. A potential problem with running continuous budget deficits is that the spending builds up over time which adds to inflationary pressures.

Answer: False

• 4. In recent days we have observed falling government bond yields in most non-EMU nations which suggests that investors are viewing sovereign debt less favourably since the downgrading of the US rating.

Answer: False

• 5. Premium Question: If private domestic investment is less than private domestic saving and the current account is draining aggregate demand then the government budget has to be in deficit no matter what level of GDP is produced.

Answer: True