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    Question

    The golden rule of fiscal policy is that the governments

    are expected to borrow over the cycle to finance
    A Current expenditure Correct Answer Incorrect Answer
    B Old loans Correct Answer Incorrect Answer
    C Investments Correct Answer Incorrect Answer
    D Imported consumer goods Correct Answer Incorrect Answer

    Solution

    The Golden Rule states that over the economic cycle, the Government will borrow only to invest and not to fund current spending. In layman's terms this means that on average over the ups and downs of an economic cycle the government should only borrow to pay for investment that benefits future generations.

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