Quiz #207 answers

• 1. One advantage of low inflation is that the central bank can better use balance sheet management techniques to control yields on public debt at certain targetted maturities.

Answer: True

• 2. Modern Monetary Theory (MMT) demonstrates that a currency-issuing government has no intrinsic financial constraint and any constraints that are observed in practice reflect voluntary decisions by government to restrict their options. It remains, however, that the inflation risk associated with government spending would be higher if such a government stopped issuing public debt to match its deficit spending.

Answer: False

• 3. Adopting a fiscal rule that requires the government maintain an average budget balance over the course of each business cycle would mean its overall budget outcome would be insulated from the impacts of the automatic stabilisers.

Answer: False