Quiz #229 answers

• 1. People are richer if the government issues bonds to match its net deficit spending relative to a situation where the government just instructed the central bank to ensure all spending cleared the payments system.

Answer: False

• 2. The sectoral balances perspective of the national accounting framework tells us that the private domestic sector cannot save if a nations external sector is in balance and the government runs a balanced budget.

Answer: False

• 3. So-called "progressives" tend to argue that if austerity is to be imposed it is better to increase taxes (particularly on high income earners). Conversely, "conservatives" demand spending cuts and privatisation. In terms of the initial impact on national income, which policy option will be more damaging - a tax increase which aims to increase tax revenue at the current level of national income by $x or a spending cut of $x?

Answer: Spending cut