Quiz #299

• 1. If Italy, which currently faces insolvency risk on its outstanding public debt, was to leave the Eurozone, re-introduce the lira, and re-denominate all euro liabilities into the new currency, then they would eliminate that risk on all future liabilities.
• False
• True
• 2. Accumulating fiscal surpluses driven by large external surpluses in a sovereign fund allows a government more non-inflationary spending space in the future with lower taxes once the resource wealth dissipates and the external sector moves into deficit.
• False
• True
• 3. Only one of the following propositions is possible (with all balances expressed as a per cent of GDP):
  • 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 less than they are earning.
  • 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.
  • A nation can run a current account deficit with a government sector surplus that is larger, while the private domestic sector is spending less than they are earning.
  • None of the above are possible as they all defy the sectoral balances accounting identity.
• (d)
• (c)
• (b)
• (a)

Quiz #299 answers

• 1. If Italy, which currently faces insolvency risk on its outstanding public debt, was to leave the Eurozone, re-introduce the lira, and re-denominate all euro liabilities into the new currency, then they would eliminate that risk on all future liabilities.

Answer: False

• 2. Accumulating fiscal surpluses driven by large external surpluses in a sovereign fund allows a government more non-inflationary spending space in the future with lower taxes once the resource wealth dissipates and the external sector moves into deficit.

Answer: False

• 3. Only one of the following propositions is possible (with all balances expressed as a per cent of GDP):
  • 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 less than they are earning.
  • 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.
  • A nation can run a current account deficit with a government sector surplus that is larger, while the private domestic sector is spending less than they are earning.
  • None of the above are possible as they all defy the sectoral balances accounting identity.

Answer: (b)