1. If the trend to austerity led to all national governments simultaneously running public surpluses then it would be impossible for all their respective private domestic sectors to save overall.
Answer: True
2. Which budget deficit outcome is the most expansionary?
Answer: 3 per cent of GDP
3. When the government matches its deficit with debt-issuance it changes the portfolio of wealth held in the non-government sector. The impact on purchasing power is equivalent to a leakage from the expenditure system (akin to taxation, saving or imports) which reduces the expansionary impact of the government deficit spending.