Quiz #449
- 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.
- 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.
- 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:
- of equal proportion to GDP, while the private domestic sector is spending less than they are earning.
- of equal proportion to GDP, while the private domestic sector is spending more than they are earning.
- that is a larger proportion of GDP, while the private domestic sector is spending less than they are earning.
- None of the above are possible as they all defy the sectoral balances accounting identity.
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.