Quiz #474 answers

• 1. If the real interest rate (difference between nominal interest rate and inflation) is constant, then a currency-issuing government, which matches its net spending $-for-$ with debt issuance, could double its fiscal deficit without pushing up the public debt ratio.

Answer: True

• 2. A government in any nation that achieves positive net exports can push for a primary fiscal surplus knowing it will not compromise growth.

Answer: False

• 3. Assume that inflation is stable, there is excess productive capacity, and the central bank maintains its current interest rate target. If on average the government collects an income tax of 20 cents in the dollar, then total tax revenue will rise by 0.20 times $x if government spending increases (once and for all) by $X dollars and private investment and exports remain unchanged.

Answer: False