Quiz #146

• 1. Assuming the expenditure multiplier is greater than 1, deficit spending will have a greater impact on aggregate demand if there are no offsetting monetary operations by the central bank (government bond sales) draining the excess reserves created.
• False
• True
• 2. If the government achieves in reducing its net spending by say $10 billion, the net financial assets destroyed by this fiscal withdrawal could be replaced by the central bank engaging in a $10 billion quantitative easing program.
• False
• True
• 3. The non-government sector is wealthier when the government issues debt to exactly match ($-for-$) its increase in net public spending.
• False
• True
• 4. When a country runs an external surplus, the national government can safely run a budget surplus without impeding economic growth.
• False
• True
• 5. Premium Question: Which budget deficit outcome is the most expansionary?
• (a) 1 per cent of GDP
• (b) 2 per cent of GDP
• (c) 3 per cent of GDP
• (d) Depends on the decomposition of the structural and cyclical components.

Quiz #146 answers

• 1. Assuming the expenditure multiplier is greater than 1, deficit spending will have a greater impact on aggregate demand if there are no offsetting monetary operations by the central bank (government bond sales) draining the excess reserves created.

Answer: False

• 2. If the government achieves in reducing its net spending by say $10 billion, the net financial assets destroyed by this fiscal withdrawal could be replaced by the central bank engaging in a $10 billion quantitative easing program.

Answer: False

• 3. The non-government sector is wealthier when the government issues debt to exactly match ($-for-$) its increase in net public spending.

Answer: False

• 4. When a country runs an external surplus, the national government can safely run a budget surplus without impeding economic growth.

Answer: False

• 5. Premium Question: Which budget deficit outcome is the most expansionary?

Answer: (c) 3 per cent of GDP