1. One advantage of low inflation is that the central bank can better use balance sheet management techniques to control yields on public debt at certain targetted maturities.

Answer: True

2. Adopting a fiscal rule that requires the government maintain a fiscal balance of zero at all times means that the fiscal outcome is insulated from the impact of the automatic stabilisers.

Answer: False

3. Only one of the following propositions is possible (with all balances expressed as a per cent of GDP):

Answer: A nation can run an external deficit and equal government surplus while the private domestic sector is dis-saving overall.