Quiz #392 answers

• 1. A nation, whose national government runs a balanced fiscal position over the economic cycle (peak to peak) must accept, that after all the spending adjustments are exhausted, its private domestic sector will be increasingly indebted if the nation is running an external deficit over that cycle.

Answer: True

• 2. A nation that manages its currency via a currency board always has to have sufficient foreign reserves to match the outstanding central bank liabilities (reserves and cash outstanding). Under this arrangement it can always guarantee 100 per cent convertibility but has to endure deflationary tendencies unless it runs external surpluses.

Answer: True

• 3. Modern Monetary Theory (MMT) demonstrates that mass unemployment can arise from workers demanding too high a nominal wage in relation to the inflation rate.

Answer: True