Quiz #697

• 1. The distinction between structural and the cyclical components of the final government balance helps us to determine the direction of the discretionary fiscal policy stance of the government. In that context, which of the following situations represents the more expansionary outcome:
• A government deficit equivalent to 5 per cent of GDP.
• A government deficit equivalent to 3 per cent of GDP.
• You cannot tell because you do not know the decomposition between the cyclical and structural components.
• 2. If private domestic investment is greater than private domestic saving and the current account is in deficit then the government balance has to be in deficit at all levels of GDP.
• False
• True
• 3. If a central bank continues to use Quantitative Easing to accompany net public spending, it would still require debt issuance to support a non-zero policy interest rate.
• False
• True

Quiz #697 answers

• 1. The distinction between structural and the cyclical components of the final government balance helps us to determine the direction of the discretionary fiscal policy stance of the government. In that context, which of the following situations represents the more expansionary outcome:

Answer: A government deficit equivalent to 5 per cent of GDP.

• 2. If private domestic investment is greater than private domestic saving and the current account is in deficit then the government balance has to be in deficit at all levels of GDP.

Answer: False

• 3. If a central bank continues to use Quantitative Easing to accompany net public spending, it would still require debt issuance to support a non-zero policy interest rate.

Answer: False