Quiz #561 answers

• 1. Start from a situation where the external surplus is the equivalent of 2 per cent of GDP and the fiscal surplus is 2 per cent. If the fiscal balance was to stay constant and the external surplus rises to the equivalent of 4 per cent of GDP then:

Answer: GDP rises and the private domestic surplus moves from 0 per cent of GDP to 2 per cent of GDP.

• 2. While tax liabilities are crucial to legimitise government spending, the resulting tax revenue does not fund the spending. However, it does cause unemployment.

Answer: True

• 3. Some progressives call for bank lending to be more closely regulated to ensure that all bank loans were backed by reserves held at the central bank to stop another credit binge. However, financial market interests argue that this would unnecessarily reduce the capacity of the banks to lend and damage the economy. Both are wrong.

Answer: True