Quiz #468 answers

• 1. A sovereign national government can run a balanced fiscal position over the business cycle (peak to peak) as long as it accepts that, after all the spending adjustments are exhausted, the private domestic balance will mirror the external balance. That means a country running an external deficit will have an increasingly indebted private domestic sector.

Answer: True

• 2. A nation that manages its currency via a currency board (for example, Estonia and Latvia) 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) allows for the possibility that trade union power can cause mass unemployment.

Answer: True