Quiz #505 answers

• 1. A fiscal deficit that is equivalent to 5 per cent of GDP always signals a more expansionary fiscal intent from government than a fiscal deficit outcome that is equivalent to 3 per cent of GDP.

Answer: False

• 2. If the household saving ratio rises and there is an external deficit then Modern Monetary Theory (MMT) tells us that the government must increase net spending to fill the spending gap or else national output and income will fall.

Answer: False

• 3. While the EMU nations cannot use the exchange rate mechanism to adjust for trading imbalances arising from a lack of competitiveness, they will improve their competitive position by reducing their domestic wage and price levels (the so-called internal devaluation).

Answer: False