Quiz #193 answers

• 1. At present all the Eurozone member nations face insolvency risk. If any one of them left the Eurozone and re-established its own currency, re-denominated all euro liabilities into their own currency, then they would eliminate that risk on all future liabilities.

Answer: False

• 2. Nations that run large external surpluses can usually maintain economic growth and satisfy the desire of the private domestic sector to save overall while running budget surpluses. By accumulating those budget surpluses in a sovereign fund, the government can create more space for non-inflationary spending in the future once the resource wealth dissipates and the external sector moves into deficit.

Answer: False

• 3. The estimates of structural budget deficits by multilateral agencies such as the IMF and the OECD, will usually lead one to conclude that a government's discretionary fiscal position is more expansionary than it actually is.

Answer: True

• 4. Only one of the following propositions is possible (with all balances expressed as a per cent of GDP):

Answer: A nation can run a current account deficit accompanied by a government sector surplus 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