Quiz #265 answers

• 1. If austerity led to all national governments simultaneously running public surpluses (which is the aim) then it would be still possible for all their respective private domestic sectors to spend less than they earn depending on the trade outcome.

Answer: False

• 2. A leakage from the spending system can occur via taxation, imports or saving which reduces the expenditure multiplier effect of government spending. Another leakage which reduces the expansionary impact of government deficit spending occurs when the government matches the deficit with debt-issuance, the latter act which drains private sector purchasing power.

Answer: False

• 3. With reserve requirements low or zero, bank lending is capital-constrained rather than reserve constrained. But that would change if, for example, the central bank forced banks to maintain a reserve ratio of 100 per cent.

Answer: False