Quiz #406

• 1. A rising public debt ratio during a recession is of no concern because it falls once economic growth resumes.
• False
• True
• 2. Only one of the following propositions is possible (with all balances expressed as a per cent of GDP) - a nation can run a current account deficit:
• Accompanied by a government sector surplus that is larger, while the private domestic sector spends less than it earns.
• None of the above are possible as they all defy the sectoral balances accounting identity.
• Accompanied by a government sector surplus of equal size, while the private domestic sector spends less than it earns.
• Accompanied by a government sector surplus of equal size, while the private domestic sector spends more than it earns.
• 3. The expansionary impact of deficit spending on aggregate demand will be lower when the government matches its fiscal deficit with debt-issuance compared to a situation where it issues no debt.
• False
• True

Quiz #406 answers

• 1. A rising public debt ratio during a recession is of no concern because it falls once economic growth resumes.

Answer: False

• 2. Only one of the following propositions is possible (with all balances expressed as a per cent of GDP) - a nation can run a current account deficit:

Answer: Accompanied by a government sector surplus of equal size, while the private domestic sector spends more than it earns.

• 3. The expansionary impact of deficit spending on aggregate demand will be lower when the government matches its fiscal deficit with debt-issuance compared to a situation where it issues no debt.

Answer: False