Quiz #408 answers

• 1. The money supply is often defined to be the sum of currency on issue and demand deposits held in banks. The value of money always declines if the money supply rises.

Answer: False

• 2. Economists note that the automatic stabilisers embedded in government fiscal policy increase deficits (or reduce surpluses) in times of slack aggregate demand. This sensitivity of the fiscal outcome to the economic cycle would not be eliminated if the government followed a fiscal rule such that it had to be in balance at all times.

Answer: True

• 3. If the nation is running a current account deficit, then domestic households and firms and the government cannot simultaneously spend less than their income.

Answer: True