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 government uses its fiscal policy instruments to maintain trend real GDP growth it will also ensure full employment is sustained.
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 run surpluses without damaging employment growth.