Quiz #138 answers

• 1. At present Greece (and all the EMU member nations) face insolvency risk. If Greece left the Eurozone and re-established its own currency, converted all euro liabilities to their own currency, they would eliminate that risk on all future liabilities.

Answer: False

• 2. When a nation is enjoying a strong terms of trade with an external surplus, the government can create more space for non-inflationary spending in the future by running budget surpluses and accumulating them in a sovereign fund.

Answer: False

• 3. OECD estimates of structural budget deficits will usually lead one to conclude that a government's discretionary fiscal position is less expansionary than it actually is.

Answer: False

• 4. Only one of the following propositions is possible (with all balances expressed as a per cent of GDP). A nation can run a current account deficit accompanied by a government sector surplus:

Answer: of equal proportion to GDP, while the private domestic sector is spending more than they are earning.

• 5. Premium Question: Under current institutional arrangements, the change in the ratio of public debt to GDP will exactly equal the primary deficit plus the interest service payments on the outstanding stock of debt both expressed as ratios to GDP minus the changes in the monetary base arising from official foreign exchange transactions.

Answer: False