Quiz #538 answers

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

Answer: False

• 2. 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 positive.

Answer: False

• 3. With fiscal and monetary policy tied by the EMU arrangements, the only adjustment mechanism left for Eurozone Member States is to reduce wages and prices to restore external competitiveness. While harsh, eventually the competitive position improves, if wages and prices are successfully cut.

Answer: False