1. When the government matches a deficit by issuing debt to the private sector this is equivalent to a leakage from the expenditure system (akin to taxation, saving or imports) which reduces the expansionary impact of the government deficit spending.
Answer: False
2. Which fiscal deficit outcome is the least expansionary?
Answer: 1 per cent of GDP
3. If the government reduces its net spending by say $10 billion, the net financial assets destroyed by this fiscal withdrawal could be replaced by the central bank engaging in a $10 billion quantitative easing program.