Quiz #616 answers

• 1. Quantitative easing and an expansion of net public spending both add net financial assets to the non-government sector but the former aims to stimulate demand by lowering interest rates while the latter policy choice more directly adds demand to the system.

Answer: False

• 2. If the household saving ratio rises and there is an external deficit then Modern Monetary Theory tells us that the government must increase net spending to fill the private spending gap or else national output and income will fall.

Answer: False

• 3. When a government such as the US or Australian government voluntarily decides to issue debt to the private sector to match its net spending position (deficit), it soaks up funds and restricts the capacity for private investment projects.

Answer: False