Quiz #436 answers

• 1. The automatic stabilisers, that are built into fiscal policy settings, operate in a counter-cyclical fashion and ensure that the government fiscal balance, which rises during a recession, returns to its appropriate level once growth resumes.

Answer: False

• 2. A potential problem with running continuous fiscal deficits is that the spending builds up over time which adds to inflationary pressures.

Answer: False

• 3. If private domestic investment is less than private domestic saving and the external sector is draining aggregate spending from the economy then the government fiscal balance has to be in deficit no matter what level of GDP is produced.

Answer: True