1. If the government abandons the practice of issuing bonds to the non-government sector to match its fiscal deficit, the latter will be less wealthy but have more cash.

Answer: False

2. When a country runs a small current account deficit and the private domestic sector is saving overall, the government fiscal balance will always be in deficit.

Answer: True

3. The British Labour Party under its new leadership is still wedded to eliminating the fiscal deficit. However, it has stated it prefers tax increases rather than spending cuts whereas so-called "conservatives" recommend spending cuts and privatisation. In terms of the initial impact on national income, which policy option will be more damaging - a tax increase which aims to increase tax revenue at the current level of national income by $x or a spending cut of $x?

Answer: Spending cut