Quiz #469 answers

• 1. Start from a situation where both the external surplus and the fiscal surplus are equal to 2 per cent of GDP. If the fiscal balance stays constant and the external surplus rises to be 4 per cent of GDP then national income has to rise and the private domestic balance moves from 0 to 2 per cent of GDP.

Answer: True

• 2. If all bank loans had to be backed by reserves held at the bank then this would act as a brake on the capacity of the banks to lend.

Answer: False

• 3. Assume a nation's central bank successfully maintains a zero interest rate policy and recession keeps the inflation rate at zero. Under these circumstances a program of fiscal austerity can reduce the public debt ratio even if the movements in the automatic stabilisers reduce the growth of tax revenue.

Answer: True