Quiz #423 answers

• 1. In the absence of exchange rate flexibility, the Eurozone member states have to use painful internal devaluation designed to deflate nominal wages and prices in order to facilitate increased external competitiveness. If wages and prices fall at the same rate, then, for the logic to follow, labour productivity has to rise and employment has to fall.

Answer: False

• 2. To ensure that the financial system is stable, the central bank has to allow movements in the money supply to be driven by the movements in the monetary base.

Answer: False

• 3. The cost of spending by a sovereign government increases when the bond markets push yields on new government bond issues up.

Answer: False