Quiz #320

• 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.
• False
• True
• 2. Which fiscal deficit outcome is the least expansionary?
• 1 per cent of GDP
• 2 per cent of GDP
• 3 per cent of GDP
• Cannot say, it depends on the decomposition of the structural and cyclical components.
• 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.
• False
• True

Quiz #320 answers

• 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.

Answer: False