Quiz #217

• 1. When an external deficit and public deficit coincide, there must be a private sector deficit. This suggests that governments can only run budget deficits safely to support a private sector surplus, when net exports are strong.
• False
• True
• 2. When the private domestic sector decides to lift its saving ratio we cannot conclude that the national government has to increase its net spending (deficit) to avoid employment losses.
• False
• True
• 3. When the government pays back funds that is has borrowed from the non-government sector the payments may:
• be inflationary if the economy is growing strongly when the bonds mature and there is too much money floating about.
• be inflationary if the government payments to bond holders at maturity add more to nominal aggregate demand than the real economy can support given other policy settings.
• not be inflationary because the sovereign government just has to credit the bank accounts of those who hold the bonds to repay them.

Quiz #217 answers

• 1. When an external deficit and public deficit coincide, there must be a private sector deficit. This suggests that governments can only run budget deficits safely to support a private sector surplus, when net exports are strong.

Answer: False

• 2. When the private domestic sector decides to lift its saving ratio we cannot conclude that the national government has to increase its net spending (deficit) to avoid employment losses.

Answer: True

• 3. When the government pays back funds that is has borrowed from the non-government sector the payments may:

Answer: be inflationary if the government payments to bond holders at maturity add more to nominal aggregate demand than the real economy can support given other policy settings.