1. In the wake of a rising household saving ratio, a nation with an external deficit will move towards recession unless government net spending increases.

Answer: False

2. The IMF recently downgraded their real GDP growth estimates for several advanced economies. One such economy is now projected to grow in real terms by around 2.1 per cent over the next 12 months. Real GDP per employed person is estimated to grow by 1.1 per cent over the same period and there is also the expectation that average weekly hours worked will remain more or less constant in 2013. Which of the following labour force growth rates would provide the basis for the forecast that the unemployment rate will be lower in 12 months time?

Answer: 0.9

3. Economists use two multipliers to estimate the impact on GDP of an expansion in government spending associated with rising tax rates. The spending multiplier indicates the extent to which GDP rises as a result of the extra aggregate demand arising from the increased government spending. The tax multiplier indicates the impact of rising tax rates on GDP as labour supply is reduced because of the disincentives associated with taxation. The net effect on GDP is the sum of these two impacts.

Answer: False