1. Take an economy that is running a current account deficit equivalent to 2 per cent of its GDP with a government recording a budget surplus of 2 per cent of GDP. If the budget balance stays constant and the external surplus rises to the equivalent of 4 per cent of GDP then you can conclude that national income also rises and the private domestic sector switches from a position where it is spending more than it is earning (deficit equivalent to 2 per cent of GDP) to a position where it is saving overall by 2 per cent of GDP.

Answer: False

2. 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

3. 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