1. The larger the balances that the commercial banks have on account with the central bank the more they can lend to customers

Answer: False

2. The inflation risk of government deficit spending is invariant between matching the change in net spending with funds provided by the central bank or issuing debt to the private bond markets.

Answer: True

3. Only one of the following propositions is possible (with all balances expressed as a per cent of GDP).

Answer: A nation can run an external deficit and equal government surplus while the private domestic sector is dis-saving overall.