Quiz #185 answers

• 1. Although we know that a country is running a small current account deficit and that the private domestic sector is saving overall, we are unable to draw any conclusions about the state of the fiscal balance until we know the relative magnitudes of the other balances.

Answer: False

• 2. While a currency-issuing government does not have to issue bonds to match its deficit spending, one of the advantages of raising debt from the private sector is that it provides a boost to private wealth.

Answer: False

• 3. Fiscal austerity aims to reduce the stock of net government spending by reducing spending and/or increasing taxes.

Answer: False

• 4. 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

• 5. Premium Question: 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). Export competitiveness will rise if they are successful with this strategy.

Answer: False