Quiz #306 answers

• 1. Although we know that a country is running a small current account deficit and that the private domestic sector is saving overall, we are unable to draw any conclusions about the state of the fiscal balance until we know the relative magnitudes of the other balances.

Answer: False

• 2. A currency-issuing government does not have to issue bonds to match its deficit spending. One of the problems of issuing debt to the non-government sector, as opposed to funding the spending via central bank credit, is that it is a form of corporate welfare because it boosts private wealth.

Answer: False

• 3. A rising fiscal surplus, which means the government is increasingly withdrawing more purchasing power from the economy than it is adding, signals that discretionary fiscal policy is contractionary (aiming to reduce total economic activity).

Answer: False