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The Weekend Quiz – February 13-14, 2016

Welcome to The Weekend Quiz, which used to be known as the Saturday Quiz! The quiz tests whether you have been paying attention over the last seven days. See how you go with the following questions. Your results are only known to you and no records are retained.

1. If the fiscal balance of a currency-issuing national government moves into surplus:

2. A nation that continues to record an external surplus due to strong net exports can safely run a fiscal surplus without impeding economic growth.

3. In Year 1, we observe a subdued inflation rate of 1 per cent per annum. At the start of the year, the outstanding public debt is equal to the value of the nominal GDP and the nominal interest rate is equal to 1 per cent (and this is the rate the government pays on all outstanding debt). The economy plunges into recession with nominal GDP growth falling by 1 per cent. As a result, the government's fiscal balance net of interest payments goes into deficit equivalent to 1 per cent of GDP and the public debt ratio rises by 3 per cent. In Year 2, the government stimulates the economy and doubles the primary fiscal deficit relative to GDP and, in doing so, stimulates aggregate demand and the economy records a 4 per cent nominal GDP growth rate. All other parameters are unchanged in Year 2. Under these circumstances, the public debt ratio will rise but by an amount less than the rise in the fiscal deficit because of the real growth in the economy.

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