Quiz #656

• 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.
• False
• True
• 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.
• False
• True
• 3. Which government deficit outcome is the most expansionary?
• Overall deficit of 1 per cent of GDP.
• Structural deficit of 1 per cent of GDP.
• Overall deficit of 2 per cent of GDP.

Quiz #656 answers

• 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?

Answer: Overall deficit of 2 per cent of GDP.