Quiz #61 answers

• 1. Estonia and Latvia both run currency boards which requires that the nation have sufficient foreign reserves to match the outstanding central bank liabilities (reserves and cash outstanding). This system ensures 100 per cent convertibility but is highly deflationary unless the country runs external surpluses.

Answer: True

• 2. From the perspective of Modern Monetary Theory (MMT), mass unemployment can arise from workers demanding too high a nominal wage in relation to the inflation rate.

Answer: True

• 3. A Eurozone nation that runs a persistent current account deficit cannot sustain rising living standards over time given that the ECB chooses to maintain rigid control of the inflation rate.

Answer: Unlikely

• 4. A sovereign national government can run a balanced budget over the business cycle (peak to peak) as long as it accepts that after all the spending adjustments are exhausted that the private domestic balance will mirror the external balance. That means a country running an external deficit will have an increasingly indebted private domestic sector.

Answer: True

• 5. If nominal wages keep pace with inflation which is accelerating at the same rate as labour productivity is growing then there is no shift in the wage share in GDP.

Answer: True