Quiz #636 answers

• 1. Assume inflation is stable, there is excess productive capacity, and the central bank maintains its current monetary policy setting. It is then true that if government spending increases by $X dollars and private investment and exports are unchanged then nominal income will continue growing until the sum of taxation revenue, import spending and household saving rises by $X dollars.

Answer: True

• 2. The crucial difference between a monetary system based on the gold standard world and a fiat currency monetary is:

Answer: that under the former system, the national government had to issue debt to cover spending above taxation.

• 3. When the national government's fiscal balance moves into deficit:

Answer: you cannot conclude anything about the government's policy intentions.