Quiz #377

• 1. A sovereign national government, that is, one that issues its own floating currency faces no solvency risk with respect to the debt it issues.
• False
• True
• 2. One important lesson to be drawn from Modern Monetary Theory (MMT), which is overlooked in the public call for austerity programs, is that when economic growth resumes, the automatic stabilisers work in a counter-cyclical fashion to ensure that the government fiscal balance returns to its appropriate level.
• False
• True
• 3. It is claimed that Eurozone Member States need to rely on internal devaluation. Austerity programs thus aim to deflate nominal wages and prices in order to restore international competitiveness. Which of the following propositions must also follow according to this logic?
• If wages and prices fall at the same rate, then labour productivity has to rise and what happens to employment is irrelevant.
• If wages and prices fall at the same rate, then labour productivity has to rise and employment must grow.
• If wages and prices fall at the same rate, then labour productivity has to rise and employment remain constant or grow.
• None of the above.

Quiz #377 answers

• 1. A sovereign national government, that is, one that issues its own floating currency faces no solvency risk with respect to the debt it issues.

Answer: False

• 2. One important lesson to be drawn from Modern Monetary Theory (MMT), which is overlooked in the public call for austerity programs, is that when economic growth resumes, the automatic stabilisers work in a counter-cyclical fashion to ensure that the government fiscal balance returns to its appropriate level.

Answer: False

• 3. It is claimed that Eurozone Member States need to rely on internal devaluation. Austerity programs thus aim to deflate nominal wages and prices in order to restore international competitiveness. Which of the following propositions must also follow according to this logic?

Answer: If wages and prices fall at the same rate, then labour productivity has to rise and what happens to employment is irrelevant.