Quiz #499 answers

• 1. Assume that inflation is stable, there is excess productive capacity, and the central bank maintains its current monetary policy setting. In this situation, if government spending increases by $X dollars and private investment and exports are unchanged nominal income will continue growing until the sum of taxation revenue, import spending and household saving rises by more than $X dollars because of the multiplier.

Answer: False

• 2. When a government such as the US government voluntarily constrains itself to borrow to cover its net spending position, it substitutes its spending for the borrowed funds and logically reduces the private capacity to borrow and spend.

Answer: False

• 3. When the national government's budget balance moves into deficit, we know that the government is trying to stimulate the economy.

Answer: False