Quiz #710 answers

• 1. A public works program that digs holes and fills them in again has exactly the same impact on current economic growth ($-for-$) as a private investment plan which constructs a new factory.

Answer: True

• 2. The automatic stabilisers increase deficits (or reduce 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 fiscal position 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