Quiz #252 answers

• 1. Start from a situation where the external surplus is the equivalent of 2 per cent of GDP and the government surplus is 2 per cent. If the government 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. Assume a nation is running an external surplus equivalent to 2 per cent of GDP and the private domestic sector is currently saving overall 1 per cent of GDP. In this situation, the government must be running:

Answer: A surplus equal to 1 per cent of GDP.

• 3. Many progressive observers are demanding that bank lending should be more closely regulated to ensure that all bank loans were backed by reserves held at the bank. However, this would unnecessarily reduce the capacity of the banks to lend.

Answer: False