Quiz #290

• 1. Only one of the following propositions is possible (with all balances expressed as a per cent of GDP) - a nation can run a current account deficit accompanied by a government sector surplus:
• of equal proportion to GDP, while the private domestic sector is spending less than they are earning.
• of equal proportion to GDP, while the private domestic sector is spending more than they are earning.
• that is larger, while the private domestic sector is spending less than they are earning.
• None of the above are possible as they all defy the sectoral balances accounting identity.
• 2. The total stock of public debt as a percentage of Gross Domestic Product (the so-called public debt ratio) is of no concern because it falls once economic growth resumes.
• False
• True
• 3. The expansionary impact of deficit spending on aggregate demand is lower when the government matches the deficit with debt-issuance compared to a situation when it issued no debt.
• False
• True

Quiz #290 answers

• 1. Only one of the following propositions is possible (with all balances expressed as a per cent of GDP) - a nation can run a current account deficit accompanied by a government sector surplus:

Answer: of equal proportion to GDP, while the private domestic sector is spending more than they are earning.

• 2. The total stock of public debt as a percentage of Gross Domestic Product (the so-called public debt ratio) is of no concern because it falls once economic growth resumes.

Answer: False

• 3. The expansionary impact of deficit spending on aggregate demand is lower when the government matches the deficit with debt-issuance compared to a situation when it issued no debt.

Answer: False