Quiz #319

• 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:
• an excess of spending relative to its income equal to 2 per cent of GDP.
• a deficit in spending relative to its income equal to 2 per cent of GDP.
• Cannot really tell definitively without further information.
• 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.
• False
• True
• 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.
• False
• True

Quiz #319 answers

• 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.

Answer: False