Quiz #702 answers

• 1. Only one of the following propositions is possible for a nation with an external deficit over any given period (with all balances expressed as a per cent of GDP): A public surplus of equal size to the external deficit, with the private domestic sector dis-saving overall. A public surplus larger than the external deficit, with the private domestic sector saving overall

Answer: A public surplus of equal size to the external deficit, with the private domestic sector dis-saving overall.

• 2. If in attempting to estimate the cyclical component of a government fiscal outcome we underestimate the potential capacity of an economy, we will conclude that the government's discretionary fiscal position is less expansionary than it actually is.

Answer: False

• 3. Governments concerned with their public debt ratio should encourage growth because the debt ratio always falls once economic growth resumes.

Answer: False