Quiz #517

• 1. Which scenario represents a more expansionary outcome:
  • (a) A fiscal deficit equivalent to 2 per cent of GDP (including the impact of automatic stabilisers equivalent to 1 per cent of GDP).
  • (b) A fiscal deficit equivalent to 2 per cent of GDP completely 'structural' in nature.
  • (c) A fiscal deficit of equivalent to 3 per cent completely 'cyclical' in nature.
  • (d) You cannot tell because of the different cyclical and structural components in the previous options.
• Option (d)
• Option (c)
• Option (b)
• Option (a)
• 2. If net exports are running at 2 per cent of GDP, and the private domestic sector overall is saving an equivalent of 3 per cent of GDP, the government must be running a surplus equal to 1 per cent of GDP.
• False
• True
• 3. A nation can export less than the sum of imports, net factor income (such as interest and dividends) and net transfer payments (such as foreign aid) and run a government surplus:
• Of equal proportion to GDP, while the private domestic sector is spending less than they are earning.
• Of equal proportion to GDP, while the private domestic sector is spending more than they are earning.
• That is larger, while the private domestic sector is spending less than they are earning.
• None of the above are possible as they all defy the sectoral balances accounting identity.

Quiz #517 answers

• 1. Which scenario represents a more expansionary outcome:
  • (a) A fiscal deficit equivalent to 2 per cent of GDP (including the impact of automatic stabilisers equivalent to 1 per cent of GDP).
  • (b) A fiscal deficit equivalent to 2 per cent of GDP completely 'structural' in nature.
  • (c) A fiscal deficit of equivalent to 3 per cent completely 'cyclical' in nature.
  • (d) You cannot tell because of the different cyclical and structural components in the previous options.

Answer: Option (c)

• 2. If net exports are running at 2 per cent of GDP, and the private domestic sector overall is saving an equivalent of 3 per cent of GDP, the government must be running a surplus equal to 1 per cent of GDP.

Answer: False

• 3. A nation can export less than the sum of imports, net factor income (such as interest and dividends) and net transfer payments (such as foreign aid) and run a government surplus:

Answer: Of equal proportion to GDP, while the private domestic sector is spending more than they are earning.