Quiz #449 answers

• 1. At present all the EMU member nations face insolvency risk because they use a foreign currency. If one such national government left the Eurozone and re-established its own currency, converted all euro liabilities to that currency, then they would eliminate that risk on all future liabilities issued.

Answer: False

• 2. When a nation is enjoying a strong terms of trade with an external surplus, the government can create more space for non-inflationary spending in the future by running fiscal surpluses and accumulating them in a sovereign fund.

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:

Answer: of equal proportion to GDP, while the private domestic sector is spending more than they are earning.