Quiz #74 answers

• 1. There has been a lot of talk in the Australian federal election campaign about structural budget deficits. These estimates are typically based on overly pessimistic estimates potential GDP and thus should be disregarded.

Answer: True

• 2. For nations enjoying strong terms of trade (and external surplus), it is sensible for the government to run budget surpluses and accumulate them in a sovereign fund to create more space for non-inflationary spending in the future.

Answer: False

• 3. A sovereign national government, that is, one that issues its own floating currency faces no solvency risk with respect to the debt it issues.

Answer: Maybe

• 4. Under current institutional arrangements, the change in the ratio of public debt to GDP will exactly equal the primary deficit plus the interest service payments on the outstanding stock of debt both expressed as ratios to GDP minus the changes in the monetary base arising from official foreign exchange transactions.

Answer: False

• 5. It would be impossible for a central bank to directly purchase treasury debt to facilitate the national government's budget deficit while still targeting a positive short-term policy rate.

Answer: Maybe

• 6. Australian federal election bonus question: Any political party that wants to run a budget surplus when there is an external sector deficit and the private sector is trying to save overall doesn't deserve to be elected to office or to retain office.

Answer: True