Quiz #329 answers

• 1. We are told that a country is running a small current account deficit and that the private domestic sector is saving overall. However, we cannot tell what the government fiscal balance will be (deficit or surplus) until we know the relative magnitudes of the other two balances.

Answer: False

• 2. Modern Monetary Theory (MMT) explains how central banks sell bonds to drain excess bank reserves in order to maintain their given interest rate setting. We know that the same outcome can be achieved by paying interest to the commercial banks on the same reserves. Ignoring any reserve requirements, this means that there is no need for the central bank to sell debt when the government net spends.

Answer: False

• 3. The Troika wants Greece to stimulate economic growth by restoring export competitiveness through domestic deflation (reducing domestic wages and prices relative to other nations). However, Greece's export competitiveness may still fall no matter how much it deflates.

Answer: True