Quiz #220 answers

• 1. Modern Monetary Theory (MMT) consider the transactions conducted by the government sector (treasury and central bank) with the non-government sector to be vertical transactions, which change the net financial asset position of the non-government sector. However, quantitative easing (a central bank transaction) is not considered to be a vertical transaction.

Answer: True

• 2. Modern Monetary Theory (MMT) leads to the conclusion that a central bank could still increase interest rates even if the US government instructed it to directly purchase treasury debt to facilitate the national governments budget deficit rather than the treasury selling the debt into the private bond market

Answer: True

• 3. A larger budget deficit is more stimulatory than a smaller deficit even if the difference between the two is purely accounted for by the automatic stabiliser component.

Answer: True