1. If we assume that inflation is stable, there is excess productive capacity, and the central bank maintains its current monetary policy setting then if government spending increases by $X dollars and private investment and exports are unchanged, the sum of changes to taxation revenue, import spending and household saving will be greater than $X dollars because of the expenditure multiplier.
Answer: False
2. When a government such as the US government voluntarily constrains itself to borrow to cover its net spending position, it substitutes its spending for the borrowed funds and logically reduces the non-government capacity to spend.
Answer: False
3. The crucial difference between a monetary system based on the convertible currency backed by gold and a fiat currency monetary is that under the former system:
Answer: the national government had to issue debt to cover spending above taxation.