Quiz #231 answers

• 1. Start from a situation where the external surplus is the equivalent of 2 per cent of GDP and the budget surplus is 2 per cent. If the budget balance stays constant and the external surplus rises to the equivalent of 4 per cent of GDP then:

Answer: National income rises and the private surplus moves from 0 per cent of GDP to 2 per cent of GDP.

• 2. Taxes do not fund government spending but they do create unemployment.

Answer: True

• 3. Some progressives call for bank lending to be more closely regulated to ensure that all bank loans were backed by reserves held at the bank to stop another credit binge. However, financial market interests argue that this would unnecessarily reduce the capacity of the banks to lend and damage the economy. Both are wrong.

Answer: True