Quiz #291

• 1. While bank lending is capital constrained a further constraint on excess lending would be created by regulators if a 100 per cent reserve ratio (that is, all loans had to be backed by reserves) was imposed.
• False
• True
• 2. Assume that the national accounts of a nation is reveal that its external surplus is equivalent to 2 per cent of GDP and the private domestic sector is saving overall 3 per cent of GDP. We would also observe:
• A fiscal surplus equal to 5 per cent of GDP.
• A fiscal deficit equal to 5 per cent of GDP.
• A fiscal surplus equal to 1 per cent of GDP.
• A fiscal deficit equal to 1 per cent of GDP.
• 3. Assume the current public debt to GDP ratio is 100 per cent and that the nominal interest rate and the inflation rate remain constant and zero. Under these circumstances it is impossible to reduce a public debt to GDP ratio, using an austerity package if the rise in the primary surplus to GDP ratio is always exactly offset by negative GDP growth rate of the same percentage value.
• False
• True

Quiz #291 answers

• 1. While bank lending is capital constrained a further constraint on excess lending would be created by regulators if a 100 per cent reserve ratio (that is, all loans had to be backed by reserves) was imposed.

Answer: False

• 2. Assume that the national accounts of a nation is reveal that its external surplus is equivalent to 2 per cent of GDP and the private domestic sector is saving overall 3 per cent of GDP. We would also observe:

Answer: A fiscal deficit equal to 1 per cent of GDP.

• 3. Assume the current public debt to GDP ratio is 100 per cent and that the nominal interest rate and the inflation rate remain constant and zero. Under these circumstances it is impossible to reduce a public debt to GDP ratio, using an austerity package if the rise in the primary surplus to GDP ratio is always exactly offset by negative GDP growth rate of the same percentage value.

Answer: True