1. A central bank sets the short-run interest rate and can choose to pay any rate on excess reserves to the commercial banks that it chooses.

Answer: False

2. The Australian dollar is currently appreciating strongly against many key currencies because the Asian growth phase is increasing demand for our mining exports. This has put pressure on our international competitiveness which is squeezing other export industries (such as manufacturing) which are not enjoying a commensurate growth in world demand. A cut in domestic wages and the rate of inflation would restore competitiveness in the industries that are under pressure.

Answer: False

3. If the nation is running a current account deficit of 2 per cent of GDP and the government runs a surplus equal to 2 per cent of GDP, then we know that at the current level of GDP, the private domestic sector is spending more than they are earning.

Answer: True

4. In a stock-flow consistent macroeconomics, we know that flows during a period add to relevant stocks. Accordingly, if the flow of government spending rose by $100 billion in total, then if nothing else changes the stock of aggregate demand would also rise by $100 billion in the first instance (before the multiplier starts to work).

Answer: False

5. Premium Question: Modern Monetary Theory (MMT) demonstrates that mass unemployment arises from deficient aggregate demand which calls for an increase in the budget deficit to correct the deficiency. This observation is totally at odds with the mainstream view that unemployment can be reduced by cutting real wages relative to productivity.

Answer: False