Quiz #156 answers

• 1. We are told that a country is running a small current account deficit and that the private domestic sector is saving overall. However, until we know the relative magnitudes of these balances, we are unable to conclude the state of the fiscal balance.

Answer: False

• 2. Private sector wealth is invariant to the decision by government to issues bonds to match its deficit spending as against not issuing any bonds.

Answer: True

• 3. The stock of government spending continually rises when there are rising budget deficits.

Answer: False

• 4. To reduce trade deficits, Eurozone nations are seeking to restore export competitiveness (within the Eurozone) by domestic deflation (reducing domestic wages and prices relative to other nations) given they do not have a flexible exchange rate. Export competitiveness will rise if they are successful with this strategy.

Answer: False

• 5. Premium question: When a government records a budget surplus which means it is withdrawing more purchasing power from the economy than it is adding, we know that it is seeking to attenuate the growth in aggregate demand.

Answer: False