Quiz #645 answers

• 1. If the external sector is in deficit overall and GDP growth rate is faster than the real interest rate, then:

Answer: Either the private domestic sector or the government sector overall can pay down their debt liabilities.

• 2. The debt of a government which issues its own currency and floats it in international markets is not really a liability because the government can just continuously roll it over without ever having to pay it back. This is different to a household, the user of the currency, which not only has to service its debt but also has to repay them at the due date.

Answer: False

• 3. The fact that large scale quantitative easing programs conducted by central banks has not caused inflation, provides a strong refutation of the mainstream Quantity Theory of Money, which claims that growth in the stock of money will be inflationary.

Answer: False