Quiz #476

• 1. Over a given economic cycle (peak to peak), if a nation's external sector is on average balanced and the government gap between its tax revenue and spending is, on average, equal to 1 per cent of GDP, then the private domestic sector's spending-income balance will on average be in:
• Surplus of 1 per cent of GDP
• Deficit of 1 per cent of GDP
• 2. If the private domestic sector is locked into a process of deleveraging, then to avoid the employment losses arising from this lost private spending, governments have to expand public deficits.
• False
• True
• 3. If the external sector is accumulating financial claims on the local economy (that is, providing foreign savings to the domestic economy) and the GDP growth rate is lower than the real interest rate, then the private domestic sector and the government sector can both run surpluses without damaging employment growth.
• False
• True

Quiz #476 answers

• 1. Over a given economic cycle (peak to peak), if a nation's external sector is on average balanced and the government gap between its tax revenue and spending is, on average, equal to 1 per cent of GDP, then the private domestic sector's spending-income balance will on average be in:

Answer: Deficit of 1 per cent of GDP

• 2. If the private domestic sector is locked into a process of deleveraging, then to avoid the employment losses arising from this lost private spending, governments have to expand public deficits.

Answer: False

• 3. If the external sector is accumulating financial claims on the local economy (that is, providing foreign savings to the domestic economy) and the GDP growth rate is lower than the real interest rate, then the private domestic sector and the government sector can both run surpluses without damaging employment growth.

Answer: False