Quiz #544

• 1. A fiscal deficit equivalent to 3 per cent of GDP signals that the government is having a less expansionary impact than if the fiscal deficit outcome was equivalent to 5 per cent of GDP.
• False
• True
• Cannot determine policy intent until we know the automatic stabiliser component
• 2. If the external balance remains in surplus and is adding to total spending, then the national government can run a fiscal surplus without preventing economic growth from occurring.
• False
• True
• 3. Consider the following table which describes four different economies in terms of the behavioural parameters relating to the leakages to aggregate demand. Assume that in all four economies, there is idle capacity, the central bank holds all interest rates constant, inflation is constant and there are no changes in international competitiveness.
  
  Which economy would deliver the largest national income bonus for a given discretionary expansion in government spending.
• Economy A
• Economy B
• Economy C
• Economy D

Quiz #544 answers

• 1. A fiscal deficit equivalent to 3 per cent of GDP signals that the government is having a less expansionary impact than if the fiscal deficit outcome was equivalent to 5 per cent of GDP.

Answer: True

• 2. If the external balance remains in surplus and is adding to total spending, then the national government can run a fiscal surplus without preventing economic growth from occurring.

Answer: True

• 3. Consider the following table which describes four different economies in terms of the behavioural parameters relating to the leakages to aggregate demand. Assume that in all four economies, there is idle capacity, the central bank holds all interest rates constant, inflation is constant and there are no changes in international competitiveness.
  
  Which economy would deliver the largest national income bonus for a given discretionary expansion in government spending.

Answer: Economy A