Quiz #142 answers

• 1. If the European Commission successfully alters the Treaty such that member states are forced to run balanced budgets and each year they successfully achieve that goal then the private sector in nations that run external deficits will always spend less than they earn.

Answer: False

• 2. If the OECD/IMF output gap measures are biased downwards, then other things equal, we will conclude that the government's discretionary fiscal stance is more expansionary than it actually is.

Answer: True

• 3. The non-government sector does not enjoy an increase in its asset holdings when a sovereign government issues debt.

Answer: True

• 4. In a fixed coupon government bond auction, the higher is the demand for the bonds the lower the yields will be at that asset maturity which suggests that higher budget deficits will eventually drive short-term interest rates down.

Answer: False

• 5. Premium question: In a situation where the private domestic sector decides to lift its saving ratio we cannot conclude that the national government has to increase its net spending (deficit) to avoid employment losses.

Answer: True