Quiz #153 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 cannot save overall if the government runs a balanced budget.

Answer: True

• 2. A tax increase, which aims to increase tax revenue at the current level of national income by $x, will have a smaller initial negative impact on aggregate demand than a government 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 rate.

Answer: False

• 4. In many nations, private households are increasing their saving ratios (from disposable income) and firms are declining to invest. These trends indicate that budget deficits have to be higher to avoid further employment losses.

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