Quiz #312 answers

• 1. Start from a situation where the external surplus is the equivalent of 2 per cent of GDP and the fiscal surplus is 2 per cent of GDP. If the fiscal balance remains unchanged and the external surplus rises to 4 per cent of GDP then:

Answer: National income rises and the private surplus moves from 0 per cent of GDP to 2 per cent of GDP.

• 2. A rising fiscal deficit necessarily indicates that fiscal policy is expansionary.

Answer: True

• 3. If private households and firms decide to lift their saving ratio the national government has to increase its net spending (deficit) to fill the spending gap or else economic activity will slow down.

Answer: False