Quiz #89 answers

• 1. 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 only be in surplus if the external balance is in surplus.

Answer: True

• 2. Modern Monetary Theory (MMT) demonstrates that mass unemployment can arise from workers demanding nominal wage growth in excess of inflation. That is, excessive real wages can cause unemployment.

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 rising wage share in GDP requires nominal wages to grow faster than inflation.

Answer: False

• 5. Premium question: Imagine that macroeconomic policy is geared towards keeping real GDP growth on trend. Assume this rate of growth is 3 per cent per annum. If labour productivity is growing at 2 per cent per annum and the labour force is growing at 1.5 per cent per annum and the average working week is constant in hours, then the policy-driven trend will lead to a falling unemployment rate.

Answer: False