Quiz #132 answers

• 1. If a nation's external sector is in balance (and thus making no contribution to real GDP growth) then the private domestic sector will not be able to spend more than it earns (at the current income level) if the government runs a balanced budget.

Answer: True

• 2. In terms of the initial impact on national income, a tax increase which aims to increase tax revenue at the current level of national income by $x is less damaging than a spending cut of $x?

Answer: True

• 3. During a recession, a government should use expansionary fiscal policy to restore trend real GDP growth if it wants to reduce unemployment.

Answer: False

• 4. In many nations, private households are increasing their saving ratios (from disposable income) and firms are declining to invest. To avoid employment losses, these developments signal the need for expanding public deficits.

Answer: False

• 5. Premium Question: If the external sector is accumulating financial claims on the local economy and the GDP growth rate is lower than the real interest rate, then the private domestic sector and the government sector can run surpluses without damaging employment growth.

Answer: False