Quiz #70 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. If the US budget deficit keeps rising to meet the need for more fiscal stimulus, the US government would have to bear the political costs of a rising public debt ratio.

Answer: False

• 4. Fiscal rules such as are embodied in the Stability and Growth Pact of the EMU will continually create conditions of slower growth because they deprive the government of fiscal flexibility to support aggregate demand when necessary.

Answer: False

• 5. The fact that large scale quantitative easing conducted by central banks in Japan in 2001 and now, more recently, in the UK and the USA 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