Quiz #600

• 1. Modern Monetary Theory accepts the proposition that if the central bank continually expands the monetary base then there will inevitably be an accelerating inflation.
• False
• True
• 2. If there is an external deficit of 2 per cent of GDP and the government balances its fiscal position then private capital formation:
• Will outstrip private domestic saving by a margin equal to 2 per cent of GDP.
• Will be less than private domestic saving by a margin equal to 2 per cent of GDP.
• Cannot really tell definitively without further information.
• 3. While a currency-issuing government does not need to issue to debt in order to raise funds prior to spending, one effect of draining funds out of the system by borrowing from the private sector is that it reduces the risk that public spending will overheat the economy.
• False
• True

Quiz #600 answers

• 1. Modern Monetary Theory accepts the proposition that if the central bank continually expands the monetary base then there will inevitably be an accelerating inflation.

Answer: False

• 2. If there is an external deficit of 2 per cent of GDP and the government balances its fiscal position then private capital formation:

Answer: Will outstrip private domestic saving by a margin equal to 2 per cent of GDP.

• 3. While a currency-issuing government does not need to issue to debt in order to raise funds prior to spending, one effect of draining funds out of the system by borrowing from the private sector is that it reduces the risk that public spending will overheat the economy.

Answer: False