Quiz #57 answers

• 1. Higher levels of taxation permit the government to spend more.

Answer: True

• 2. If there is a current account deficit, and the domestic private sector seeks to increase its saving as a percentage of GDP, then income adjustments will ensure the government budget is in deficit.

Answer: True

• 3. For nations facing strong terms of trade (such as Australia), if the net exports boom is strong enough to push the budget into surplus and the economy to full employment then it is sensible for the government to accumulate the surpluses in a sovereign fund to create more space for non-inflationary spending in the future.

Answer: False

• 4. Larger fiscal deficits as a percentage of GDP typically mean that there are less real resources available for other productive uses.

Answer: True

• 5. The reason estimates of structural budget deficits are to be treated with suspicion relates to the fact that typically the implicit estimates of potential GDP are too optimistic.

Answer: False