1. Assuming the expenditure multiplier is greater than 1, if the government increases its deficit they will have a greatest impact on aggregate demand if there are no offsetting monetary operations by the central bank (government bond sales) draining the excess reserves created.
Answer: False
2. If the government achieves in reducing its fiscal deficit by say $10 billion, the net financial assets destroyed by this withdrawal could be replaced by the central bank engaging in a $10 billion quantitative easing program.
Answer: False
3. Which government deficit outcome is the most expansionary?