The Weekend Quiz – August 11-12, 2018

1. Which scenario represents a more expansionary outcome: (a) A fiscal deficit equivalent to 5 per cent of GDP (including the impact of automatic stabilisers equivalent to 2 per cent of GDP). (b) A fiscal deficit equivalent to 4 per cent of GDP (where the automatic stabiliser component is zero). (c) A fiscal deficit of 2 per cent. (d) You cannot tell because you do not know the decomposition between the cyclical and structural components in Option (c)

2. When the government matches an increase in its deficit spending with debt issued to the non-government sector, the immediate stimulus to aggregate expenditure is less than would be the case if the government didn't borrow at all.

3. If the central bank required that banks have to hold reserves equivalent to their outstanding loans this would restrict lending.