Quiz #606 answers

• 1. Only one of the following propositions is possible for a nation over any given period (with all balances expressed as a per cent of GDP):

Answer: An external deficit accompanied by a public surplus of equal size and the private domestic sector dis-saving overall.

• 2. If in attempting to estimate the cyclical component of a government fiscal outcome we underestimate the potential capacity of an economy, we will conclude that the government's discretionary fiscal position is less expansionary than it actually is.

Answer: False

• 3. Governments concerned with their public debt ratio should encourage growth because the debt ratio falls once economic growth resumes.

Answer: False