Quiz #163 answers

• 1. The automatic stabilisers built into national government budgeting are at present operating in a counter-cyclical manner in the Eurozone.

Answer: True

• 2. In the absence of exchange rate flexibility, the Eurozone member states are undertaking painful internal devaluation designed to deflate nominal wages and prices to facilitate increased external competitiveness. The aim, say for Greece, is 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

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

Answer: False

• 4. To ensure that the financial system is stable, the central bank has to allow the money supply to be driven by the monetary base.

Answer: False

• 5. Premium Question: The spending by a sovereign government becomes more expensive when the bond markets push yields on new bond issues up.

Answer: False