Quiz #447 answers

• 1. If the current account (on balance of payments) is in deficit and household saving increases as a proportion of disposable income then the government could still run a surplus without a decline in output and income occurring.

Answer: True

• 2. Quantitative easing tries to stimulate economic activity by reducing long-term investment rates whereas deficit spending adds to aggregate demand via tax cuts or direct public spending. Both policy effort add reserves to the banking system in different ways and involve an increase in the net financial assets held by the non-government sector.

Answer: False

• 3. Politics aside, the US central bank could still increase interest rates even if the US government instructed it to directly purchase treasury debt to facilitate the national governments fiscal deficit.

Answer: True