Quiz #155 answers

• 1. Assume a nation is running an external surplus equivalent to 2 per cent of GDP and the private domestic sector is currently saving overall 1 per cent of GDP. In this situation, the government must be running a budget deficit equal to 1 per cent of GDP.

Answer: False

• 2. Start from a situation where the external surplus is the equivalent of 2 per cent of GDP and the budget surplus is 2 per cent. If the budget balance stays constant and the external surplus rises to the equivalent of 4 per cent of GDP then you can conclude that National income also rises and the private surplus moves from 0 per cent of GDP to 2 per cent of GDP.

Answer: True

• 3. If all bank loans had to be backed by reserves held at the bank then this would act as a brake on the capacity of the banks to lend and help maintain financial stability.

Answer: False

• 4. The imposition of taxation is an essential element in a sovereign government's plan to implement and provision its socio-economic agenda.

Answer: True

• 5. Premium Question: Assume a nation's central bank successfully maintains a zero interest rate policy and recession keeps the inflation rate at zero. Under these circumstances a fiscal austerity program can achieve reductions in the public debt ratio even if the movements in the automatic stabilisers that result from the recession that the austerity causes reduce the growth of tax revenue.

Answer: True