Quiz #181 answers

• 1. The sectoral balances perspective of the national accounting framework tells us that the private domestic sector cannot save if a nation's external sector is in balance and the government runs a balanced budget.

Answer: False

• 2. Financial market commentators watch movements in UK and US bond yields as a guide to the state of confidence in the capacity of the respective governments to honour their liabilities. In this context, the commentators are correct when they conclude that rising yields on 10-year bond yields are a sign that bond markets are demanding increased risk premiums for these assets.

Answer: False

• 3. If a nation that is running an on-going external deficit is to avoid a recession, then the government spending (relative to taxation) has to rise if the household saving ratio rises.

Answer: False

• 4. Modern Monetary Theory does not accept the mainstream macroeconomics proposition that continually expanding the money supply will be inflationary.

Answer: True

• 5. Premium Question: While a currency-issuing government does not have to issue debt to match its deficit spending, it does reduce the inflation risk embodied in all spending when it issues debt and drains the purchasing power in the private sector to give itself more nominal spending space.

Answer: False