Quiz #328

• 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.
• False
• 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.
• False
• True
• 3. Only one of the following propositions is possible (with all balances expressed as a per cent of GDP):
• A nation can run an external deficit and equal government surplus while the private domestic sector is saving overall.
• A nation can run an external deficit and equal government surplus while the private domestic sector is dis-saving overall.
• A nation can run an external deficit and a larger government surplus while the private domestic sector is saving overall.
• None of the above are possible as they all defy the sectoral balances accounting identity.

Quiz #328 answers

• 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.