Quiz #540 answers

• 1. The immediate impact on the net worth of the non-government sector does not vary if the government issued bonds to exactly match ($-for-$) the increase in its net public spending or chooses not to so match.

Answer: True

• 2. The wider the spread between the price the central bank sets on the reserves it provides the commercial banks on demand (so-called penalty rates) and the target policy rate the more difficult it becomes for the central bank to ensure the quantity of reserves is appropriate for maintaining its target policy rate.

Answer: True

• 3. Assume that a national is continuously running an external deficit of 2 per cent of GDP. In this economy, if the private domestic sector successfully saves overall, we would always find:

Answer: A fiscal deficit