Quiz #248 answers

• 1. A public works program that digs holes and fills them in again has exactly the same impact on current economic growth ($-for-$) as a private investment plan which constructs a new factory.

Answer: True

• 2. Economists note that the automatic stabilisers in the government's budget increase deficits (or reduce surpluses) in times of slack aggregate demand. This sensitivity of the budget outcome to the business cycle could be eliminated if the government followed a fiscal rule such that it had to balance its budget at all times.

Answer: False

• 3. It is clear that the central bank can use balance sheet management techniques to control yields on public debt at certain targetted maturities. However, this capacity to control the term structure of interest rates is diminished during periods of high inflation.

Answer: True

• 4. Special Santa Question: Santa is having trouble keeping his sled and related delivery infrastructure in working order. But he knows

Answer: (a) that he is a household and thus a user of the currency and will have to save, earn or borrow to generate the funds necessary to maintain his equipment.