Quiz #161 answers

• 1. At present Greece (and all the EMU member nations) face insolvency risk because they use a foreign currency (the Euro). By leaving the Euro and issuing their own currencies, these nations would eliminate that risk on all their future liabilities.

Answer: False

• 2. When a nation is generating large external surpluses, it can create more space for non-inflationary spending in the future if the government runs budget surpluses and accumulates them in a sovereign fund.

Answer: False

• 3. The OECD has just published their latest analysis of the fiscal situation in the world economy. Their estimates will usually lead one to conclude that a government's discretionary fiscal position is more expansionary than it actually is.

Answer: True

• 4. A nation can run a external deficit accompanied by a government sector surplus, which is of a larger proportion to GDP than the external balance), while the private domestic sector is spending less than they are earning.

Answer: False

• 5. Premium Question: Under current institutional arrangements (where deficits are matched $-for-$ by debt-issuance), 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