Answer: True

2. Continuous budget deficits are more likely to present an inflation risk than one-off deficits designed to meet a short-term private spending decline.

Answer: False

3. The current strategy for the Eurozone is for member states to undertake a painful internal devaluation to restore growth and the austerity programs are designed to deflate nominal wages and prices to facilitate that adjustment. The aim is for Greece, for example, to reduce its real unit labour costs faster than their trading partners can. For the logic to follow then if wages and prices fall at the same rate, labour productivity has to rise and employment has to fall.

Answer: False

4. A nation can run a current account deficit accompanied by a government sector surplus (of equal proportion to GDP as the external deficit) while the private domestic sector is spending more than they are earning.

Answer: True

5. Premium question: To maintain financial stability, the monetary base has to be driven by changes in the money supply just as the money multiplier in mainstream macroeconomics textbooks explains.

Answer: False