Quiz #673 answers

• 1. Bank lending moved from being reserve-constrained to capital-constrained once the prudential authorities relaxed reserve ratio requirements and the Bank of International Settlements introduced the Basel framework for capital adequacy.

Answer: False

• 2. By increasing tax rates a sovereign government increases its capacity to spend more without increasing inflation.

Answer: True

• 3. For a nation running a small external deficit, the government will always be in deficit if the domestic private sector is saving overall.

Answer: True