1. Which scenario represents a more expansionary outcome: (a) A fiscal deficit equivalent to 5 per cent of GDP (including the impact of automatic stabilisers equivalent to 2 per cent of GDP). (b) A fiscal deficit equivalent to 4 per cent of GDP (where the automatic stabiliser component is zero). (c) A fiscal deficit of 2 per cent. (d) You cannot tell because you do not know the decomposition between the cyclical and structural components in Option (c)

Answer: Option (a)

2. When the government matches an increase in its deficit spending with debt issued to the non-government sector, the immediate stimulus to aggregate expenditure is less than would be the case if the government didn't borrow at all.

Answer: False

3. If the central bank required that banks have to hold reserves equivalent to their outstanding loans this would restrict lending.

Answer: False