Quiz #201

• 1. Economists distinguish between the structural and the cyclical components of the budget outcome as a way of determining whether the fiscal policy stance of the government is expansionary, neutral or contractionary. In that context, which of the following situations represents the more expansionary outcome:
• A budget deficit equivalent to 5 per cent of GDP
• A budget deficit equivalent to 3 per cent of GDP
• You cannot tell because you do not know the decomposition between the cyclical and structural components.
• 2. If private domestic investment is greater than private domestic saving and the current account is draining aggregate demand then the government budget has to be in deficit no matter what level of GDP is produced.
• False
• True
• 3. A central bank running a policy rate of near zero could always directly purchase Treasury debt to facilitate the governments budget deficit without compromising its monetary policy stance.
• False
• True

Quiz #201 answers

• 1. Economists distinguish between the structural and the cyclical components of the budget outcome as a way of determining whether the fiscal policy stance of the government is expansionary, neutral or contractionary. In that context, which of the following situations represents the more expansionary outcome:

Answer: A budget deficit equivalent to 5 per cent of GDP

• 2. If private domestic investment is greater than private domestic saving and the current account is draining aggregate demand then the government budget has to be in deficit no matter what level of GDP is produced.

Answer: False

• 3. A central bank running a policy rate of near zero could always directly purchase Treasury debt to facilitate the governments budget deficit without compromising its monetary policy stance.

Answer: False