Quiz #86 answers

• 1. By increasing tax rates a sovereign government increases its capacity to spend more without increasing inflation.

Answer: True

• 2. Ignoring any reserve requirements, if the central bank pays a positive interest rate on overnight reserves then it no longer has to conduct open market operations to ensure its policy rate is sustained.

Answer: Maybe

• 3. Ignoring any reserve requirements, the payment of a positive return on overnight reserves held by the commercial banks equal to the current policy rate will tend increase the overall level of reserves held by the latter.

Answer: True

• 4. Other things equal, larger fiscal deficits as a percentage of GDP squeeze the availability of real resources that the private sector can use for other productive uses.

Answer: True

• 5. Premium Question: For a nation running a small current account deficit, the government budget will always be in deficit if the domestic private sector overall successfully saves.

Answer: True