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The Weekend Quiz – October 28-29, 2017

Welcome to The Weekend Quiz. The quiz tests whether you have been paying attention or not to the blogs I post. See how you go with the following questions. Your results are only known to you and no records are retained.

1. At present all the EMU member nations face insolvency risk because they use a foreign currency. If one such national government left the Eurozone and re-established its own currency, converted all euro liabilities to that currency, then they would eliminate that risk on all future liabilities issued.

2. When a nation is enjoying a strong terms of trade with an external surplus, the government can create more space for non-inflationary spending in the future by running fiscal surpluses and accumulating them in a sovereign fund.

3. Only one of the following propositions is possible (with all balances expressed as a per cent of GDP). A nation can run a current account deficit accompanied by a government sector surplus:

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    This Post Has 6 Comments
    1. Yes C W- #1 was difficult. I bet it has something to do with a future decision to borrow in a foreign currency. Any country borrowing in a foreign currency will always have a default risk. Also, a currency issuer can choose to default on obligations in its own currency if they choose to peg it to another currency or a commodity, or for a variety of political reasons even if they don’t, but it never can be forced to either peg it or default if they don’t wish to.

      I’m waiting for the explanation also :)

    2. @Jerry re:”I bet it has something to do with a future decision to borrow in a foreign currency”.

      Yes, I’m thinking that must be it.

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