Quiz #143 answers

• 1. What the fiscal austerity proponents do not understand, is that once economic growth resumes the automatic stabilisers built into the budget always work counter-cyclically and reduce the budget balance to its appropriate level.

Answer: False

• 2. The accumulated stock of spending associated with continuous budget deficits may eventually increase the risk of inflation faced by an economy.

Answer: False

• 3. We would never observe a nation running a current account deficit and budget surplus equal to 2 per cent of GDP, while the private domestic sector was spending more than it is earning.

Answer: False

• 4. The IMF and the OECD typically evaluate government fiscal stance using estimates of the Non-Accelerating Inflation Rate of Unemployment (NAIRU) to represent full employment. If true full employment is less than the estimated NAIRU then these organisations will always consider the discretionary fiscal position to be more expansionary than it actually is.

Answer: True

• 5. Premium Question: One reason to favour the continued issuing of government debt when the government runs a deficit is that it increases the net worth of the non-government sector.

Answer: False