Quiz #352

• 1. Assume that a nation is continuously running an external deficit of 2 per cent of GDP. In this economy, if the private domestic sector successfully saves overall, we would find:
• A fiscal deficit (spending greater than tax receipts)
• A fiscal surplus (spending less than tax receipts)
• Cannot determine because we would need to know the scale of the private domestic sector saving as a % of GDP.
• 2. Given that government bonds constitute a component of non-government sector wealth, that sector's net worth rises if the government issues bonds to match its deficit spending.
• False
• True
• 3. While fiscal deficits rise due to the operation of the automatic stabilisers, these effects work in a counter-cyclical fashion to ensure that the government fiscal balance returns to its appropriate level once growth resumes.
• False
• True

Quiz #352 answers

• 1. Assume that a nation is continuously running an external deficit of 2 per cent of GDP. In this economy, if the private domestic sector successfully saves overall, we would find:

Answer: A fiscal deficit (spending greater than tax receipts)

• 2. Given that government bonds constitute a component of non-government sector wealth, that sector's net worth rises if the government issues bonds to match its deficit spending.

Answer: False

• 3. While fiscal deficits rise due to the operation of the automatic stabilisers, these effects work in a counter-cyclical fashion to ensure that the government fiscal balance returns to its appropriate level once growth resumes.

Answer: False