Quiz #214

• 1. When a nation is enjoying a strong terms of trade with an external surplus, the government can create more space for non-inflationary spending in the future by running budget surpluses and accumulating them in a sovereign fund.
• False
• True
• 2. Only one of the following propositions is possible (with all balances expressed as a per cent of GDP). A nation can run a current account deficit accompanied by a government sector surplus:
• of equal proportion to GDP, while the private domestic sector is spending less than they are earning.
• of equal proportion to GDP, while the private domestic sector is spending more than they are earning.
• that is a larger proportion of GDP, while the private domestic sector is spending less than they are earning.
• None of the above are possible as they all defy the sectoral balances accounting identity.
• 3. Under current institutional arrangements, the change in the ratio of public debt to GDP will exactly equal the primary deficit plus the interest service payments on the outstanding stock of debt both expressed as ratios to GDP plus the changes in the monetary base arising from official foreign exchange transactions.
• False
• True

Quiz #214 answers

• 1. When a nation is enjoying a strong terms of trade with an external surplus, the government can create more space for non-inflationary spending in the future by running budget surpluses and accumulating them in a sovereign fund.

Answer: False

• 2. Only one of the following propositions is possible (with all balances expressed as a per cent of GDP). A nation can run a current account deficit accompanied by a government sector surplus:

Answer: of equal proportion to GDP, while the private domestic sector is spending more than they are earning.

• 3. Under current institutional arrangements, the change in the ratio of public debt to GDP will exactly equal the primary deficit plus the interest service payments on the outstanding stock of debt both expressed as ratios to GDP plus the changes in the monetary base arising from official foreign exchange transactions.

Answer: False