1. If austerity led to all national governments simultaneously running public surpluses (which is the aim) then it would be impossible for all their respective private domestic sectors to save overall.
Answer: True
2. When the government matches its deficit with debt-issuance it changes the portfolio of wealth held in the non-government sector. The impact on purchasing power is equivalent to a leakage from the expenditure system (akin to taxation, saving or imports) which reduces the expansionary impact of the government deficit spending.
Answer: False
3. A public employment guarantee program, which required workers to attend a government centre each day and do jigsaw puzzles, would have no impact on national income.
Answer: False
4. Which budget deficit outcome is the least expansionary?
Answer: 1 per cent of GDP
5. Premium Question: If the government reduces its net spending by say $10 billion, the net financial assets destroyed by this fiscal withdrawal could be replaced by the central bank engaging in a $10 billion quantitative easing program.