Quiz #704 answers

• 1. A government can always eliminate unemployment by hiring workers to digs holes and fill them in again each day. But this option will not have the same impact on current economic growth ($-for-$) as a private investment plan which constructs a new factory.

Answer: False

• 2. Economists note that the automatic stabilisers increase fiscal deficits (or reduce fiscal surpluses) in times of slack aggregate demand. This sensitivity of the fiscal outcome to the economic cycle could be eliminated if the government followed a fiscal rule such that it had to balance its spending and taxation revenue at all times.

Answer: False

• 3. It is clear that the central bank can use balance sheet management techniques to control yields on public debt at certain targetted maturities. However, this capacity to control the term structure of interest rates is diminished during periods of high inflation.

Answer: True