Quiz #221 answers

• 1. We are told that a country is running a very small external deficit and that the private domestic sector is spending less overall than it is earning but relative to GDP this balance is smaller than the external deficit. Without knowing the relative magnitudes of these balances, we cannot conclusively determine whether the government is in deficit or surplus.

Answer: False

• 2. Government bonds constitute a form of wealth held by the non-government sector. But it remains that overall non-government sector wealth does not rise if the government issues bonds to match its deficit spending as against the central bank just buying the bonds and crediting bank accounts.

Answer: True

• 3. 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 to avoid the risk of inflation.

Answer: False