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Saturday Quiz – September 4, 2010

Welcome to the billy blog Saturday quiz. The quiz tests whether you have been paying attention over the last seven days. See how you go with the following five questions. Your results are only known to you and no records are retained.

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 mirror the external balance. That means a country running an external deficit will have an increasingly indebted private domestic sector.

2. 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.

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.

4. A nation that manages its currency via a currency board (for example, Estonia and Latvia) has to have sufficient foreign reserves to match the outstanding central bank liabilities (reserves and cash outstanding). Under this arrangement it can always guarantee 100 per cent convertibility but has to endure deflationary tendencies unless it runs external surpluses.

5. Modern Monetary Theory (MMT) demonstrates that mass unemployment can arise from workers demanding too high a nominal wage in relation to the inflation rate.

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