Quiz #340

• 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.
• False
• True
• 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.
• False
• 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?
• Tax increase
• Spending cut
• Both will be equivalent
• There is not enough information to answer this question

Quiz #340 answers

• 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