Quiz #636

• 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.
• False
• True
• Maybe
• 2. The crucial difference between a monetary system based on the gold standard world and a fiat currency monetary is:
• that under the former system, excessive national government spending led to inflation.
• that under the former system, the national government had to issue debt to cover spending above taxation.
• that under the former system, the national government could not use net spending to achieve full employment.
• 3. When the national government's fiscal balance moves into deficit:
• it is a sign that the government is trying to stimulate the economy.
• it is a sign that the government is worried that unemployment is rising
• you cannot conclude anything about the government's policy intentions.

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.