Quiz #52 answers

• 1. If the external sector overall is in deficit, it is still possible for the private domestic sector and government sector to run surpluses and each pay down its debt as long as GDP growth is fast enough (the technical condition is that the rate of GDP growth has to be faster than the real interest rate).

Answer: False

• 2. Federal government debt (where there is currency sovereignty) is not really a liability because the government can just roll it over continuously and thus they never have to pay it back. This is different to a household, which not only has to service its debt but also has to repay them at the due date.

Answer: False

• 3. The Greek crisis would be significantly eased if it could improve its tax collection arrangements to ensure that it had more financing available to cover its spending.

Answer: True

• 4. The term "beggar-my-neighbour" strategy describes a situation where a nation pushes its excess supply onto its trading partners is more applicable to Germany than China in the current situation.

Answer: True

• 5. Even though the money multiplier found in macroeconomics textbooks is a flawed description of the way the monetary system operates, having some positive minimum reserve requirements does constrain credit creation activities of the private banks more than if you have no requirements other than the rule that balances have to be non-zero.

Answer: False

• 6. My statement that the British government could do its citizens a favour by assuming absolute power and suspending the national election for three years.

Answer: (c) Was a joke!