Quiz #453 answers

• 1. A fiscal rule that forces governments to run fiscal surpluses each year would equally force the private sector to run deficits and accumulate increasing levels of indebtedness as a result.

Answer: False

• 2. If a government is running an austerity program and learns that the estimated output gap was smaller than they originally thought, then other things equal, the governments discretionary fiscal austerity would have to be intensified to balance the structural fiscal balance.

Answer: True

• 3. Opponents of continuous fiscal deficits often agree that a short-period of deficit spending when the private demand is weak is not likely to be inflationary. Their main concern is that it is the accumulated stock of spending associated with continuous fiscal deficits that eventually increases the risk of inflation. Their concern has some validity.

Answer: False