Quiz #643

• 1. Over a given economic cycle (peak to peak), if a nation's external sector is on average balanced and the government gap between its tax revenue and spending is, on average, equal to 1 per cent of GDP, then the private domestic sector's spending-income balance will on average be in:
• Surplus of 1 per cent of GDP
• Deficit of 1 per cent of GDP
• 2. Considering only the initial impact on national income (ignoring multiplier effects), fiscal austerity will have a greater negative effect on real GDP if it manifests as a spending cut of $x than if the government chose to raise a value added tax to generate $x revenue at the current level of national income.
• False
• True
• 3. During a recession, the government can always restore full employment if it uses expansionary fiscal policy to restore trend real GDP growth.
• False
• True

Quiz #643 answers

• 1. Over a given economic cycle (peak to peak), if a nation's external sector is on average balanced and the government gap between its tax revenue and spending is, on average, equal to 1 per cent of GDP, then the private domestic sector's spending-income balance will on average be in:

Answer: Deficit of 1 per cent of GDP

• 2. Considering only the initial impact on national income (ignoring multiplier effects), fiscal austerity will have a greater negative effect on real GDP if it manifests as a spending cut of $x than if the government chose to raise a value added tax to generate $x revenue at the current level of national income.

Answer: True

• 3. During a recession, the government can always restore full employment if it uses expansionary fiscal policy to restore trend real GDP growth.

Answer: False