Quiz #224 answers

• 1. In recent days, yields on Portugal government bonds have risen sharply and have once again raised the issue that Eurozone governments face insolvency risk. If, for example, Portugal was to leave the Eurozone and in re-establishing its own floating currency, it re-denominated all euro liabilities into this new currency, then they would eliminate that risk on all future liabilities.

Answer: False

• 2. Norway has accumulated one of the largest sovereign funds as a result of its North Sea energy endowments, which have allowed it to maintain high standards of living and still run budget surpluses. Once the resource wealth dissipates and Norway's external sector moves into deficit, the sovereign fund accumulation will have created more space for non-inflationary spending.

Answer: False

• 3. If a nation is running a current account deficit accompanied by a government sector surplus of equal proportion to GDP, the private domestic sector must to be in deficit.

Answer: True