Quiz #565 answers

• 1. The net worth of the non-government sector would be initially invariant to a decision by government to match or not to match its net public spending with bond issues.

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 nation 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