Quiz #628 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 stays constant and the external surplus rises to the equivalent of 4 per cent of GDP then:

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

• 2. A rising fiscal deficit indicates that discretionary fiscal policy is expansionary.

Answer: False

• 3. Matching government deficit spending with bond issues is less expansionary than if the government instructed the central bank to buy its bonds to match the deficit.

Answer: False