Quiz #483 answers

• 1. A rising household saving ratio combined with a rising external deficit that drains aggregate spending, doesn't necessarily mean that the government deficit has to rise to maintain current output growth.

Answer: True

• 2. If the European Commission relaxed the fiscal rules restricting Member State governments under the Stability and Growth Pact (3 per cent deficit to GDP ratios and 60 per cent public debt to GDP ratios) then the solvency risk that several EMU members faced during the GFC would have been resolved.

Answer: False

• 3. Mainstream economists have argued that the large scale quantitative easing conducted by central banks in recent years - so-called printing money - would be inflationary. They based their predictions on the Classical Quantity Theory of Money which links the growth of the money stock to the inflation rate (too much money chasing too few goods). The fact that inflation has not accelerated sharply indicates that this mainstream economic theory should be discarded.

Answer: False