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

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

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.

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