Quiz #148 answers

• 1. A program of fiscal austerity will always undermine attempts by the private domestic sector to reduce its indebtedness when the nation exports less than they import (including net income flows).

Answer: True

• 2. Only one of the following propositions is possible (with all balances expressed as a per cent of GDP):

Answer: A nation can run a current account deficit accompanied by a government sector surplus of equal proportion to GDP, while the private domestic sector is spending more than they are earning.

• 3. The public debt ratio is of no concern because economic growth will always bring it down after a recession.

Answer: False

• 4. A rising level of bank reserves will make it easier for banks to expand credit to the private sector.

Answer: False

• 5. Premium Question: One of the reasons that motivate a government to issue debt and introduce rules that prevent their central banks from directly "funding" deficit spending is because such practices reduces the inflation risk of such spending by draining demand capacity from the private sector.

Answer: False