Quiz #652

• 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.
• True
• 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.
• True
• 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:
• excessive national government spending led to inflation.
• the national government had to issue debt to cover spending above taxation.
• the national government could not use net spending to achieve full employment.

Quiz #652 answers

• 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.