Quiz #127 answers

• 1. Which scenario represents a more expansionary outcome:
  (a) A budget deficit equivalent to 5 per cent of GDP (including the impact of automatic stabilisers equivalent to 3 per cent of GDP).
  (b) A budget deficit equivalent to 3 per cent of GDP.
  (c) You cannot tell because you do not know the decomposition between the cyclical and structural components in Option (B)

Answer: Option (a)

• 2. When the government matches an increase in deficit spending with debt issued to the private sector, the growth in aggregate demand is less than would be the case if the government didn't borrow.

Answer: False

• 3. Fiscal austerity (manifesting as a budget surplus) will not to damage economic growth if the external balance is in surplus.

Answer: False

• 4. If the central bank regulated that banks have to hold reserve equivalent to their outstanding loans this would restrict lending.

Answer: False

• 5. Premium Question: In the context of population ageing, the fact that a sovereign government is never financially constrained means that it can always provide first-class health care to its citizens.

Answer: False