Quiz #272

• 1. Which fiscal deficit outcome (expressed in terms of the scale relative to GDP) is the most expansionary in terms of aggregate demand?
• 1 per cent of GDP
• 2 per cent of GDP
• 3 per cent of GDP
• We need to know the structural and automatic stabiliser components before we can answer
• 2. When the government matches its deficit with debt-issuance it changes the portfolio of wealth held in the non-government sector. The impact on purchasing power is equivalent to a leakage from the expenditure system (akin to taxation, saving or imports) which reduces the expansionary impact of the government deficit spending.
• False
• True
• 3. If all national governments simultaneously manage to run public surpluses (a neo-liberal nirvana) then it would still be possible for all their respective private domestic sectors to simultaneously save overall as long as no nation ran an external deficit.
• False
• True

Quiz #272 answers

• 1. Which fiscal deficit outcome (expressed in terms of the scale relative to GDP) is the most expansionary in terms of aggregate demand?

Answer: 3 per cent of GDP

• 2. When the government matches its deficit with debt-issuance it changes the portfolio of wealth held in the non-government sector. The impact on purchasing power is equivalent to a leakage from the expenditure system (akin to taxation, saving or imports) which reduces the expansionary impact of the government deficit spending.

Answer: False

• 3. If all national governments simultaneously manage to run public surpluses (a neo-liberal nirvana) then it would still be possible for all their respective private domestic sectors to simultaneously save overall as long as no nation ran an external deficit.

Answer: False