Quiz #167 answers

• 1. If the European Commission successfully alters the Treaty such that member states are forced to run balanced budgets and each year they successfully achieve that goal then the private sector in nations that run external deficits will be always spend less than they earn.

Answer: False

• 2. The British government received advice recently that said the estimated output gap measures was less than previously thought. If that advice was true, then other things equal, the government's discretionary fiscal austerity would have to be intensified to balance the structural budget.

Answer: True

• 3. When the private domestic sector decides to save more of its total income, the national government has to increase its net spending (deficit) to avoid output and employment losses.

Answer: False

• 4. In a fixed coupon government bond auction, the higher is the demand for the bonds the lower the yields will be at that asset maturity which suggests that higher budget deficits will eventually drive short-term interest rates down.

Answer: False

• 5. Premium Question: Opponents of continuous budget deficits often agree that a short-period of deficit spending when the private demand is weak is not likely to be inflationary. Their main concern is that it is the accumulated stock of spending associated with continuous budget deficits that eventually increases the risk of inflation. Their concern has validity.

Answer: False