1. If there is an external deficit of 2 per cent of GDP and the government achieves a fiscal balance then the private domestic sector will have:
Answer: an excess of spending relative to its income equal to 2 per cent of GDP.
2. When a national government borrows from the private sector it drains funds out of the system and reduces the risk that public spending will overheat the economy.
Answer: False
3. A national government would be unable to rely on the central bank purchasing treasury debt to match its fiscal deficit (that is, "monetise the deficit") if the central bank is targeting a positive short-term policy rate.