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Saturday Quiz – September 11, 2010

Welcome to the September 11th edition* of 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.

* Tuesday, September 11, 1973 – right-wing forces aided by the US overthrew the elected government Chile. It was a terrorist act we should continue to remember like other terrorist acts!

Quiz #77

  • 1 The IMF and the OECD equate the Non-Accelerating Inflation Rate of Unemployment (NAIRU) with their concept of full employment and they use the NAIRU to calibrate their structural deficit estimates. Accordingly, the structural deficits will typically be:
    • difficult to assess because their forecasts are subject to forecasting inaccuracy.
    • biased upwards thus indicating, at any point in the business cycle, that the government fiscal stance is more expansionary than it actually is.
    • biased downwards thus indicating, at any point in the business cycle, that the government fiscal stance is less expansionary than it actually is.
  • 2. Rising public debt levels at constant interest rates increase the volume of interest servicing payments that have to be made. For a sovereign nation entrenched in recession, these payments will:
    • reduce the room $-for-$ for other non-inflationary discretionary deficit spending because they will "fill up the spending gap" more quickly.
    • reduce the capacity of the private sector to save because they will require cuts backs in the deficit to support the repayments.
    • not reduce the room $-for-$ for other non-inflationary discretionary deficit spending because increasing imports will keep opening the spending gap that has to be "filled".
  • 3. Under a fiat monetary system, the absence of currency convertibility means:
    • there is no reason for people to hold currency as a hedge against gold price falls.
    • that the government can motivate people to exchange goods and services in return for public spending by fining anyone of working age who walks down the street.
    • that the currency is only convertible into government bonds rather than gold.
  • 4. When a sovereign government issues debt it logically:
    • increases the assets that are held by the non-government sector $-for-$.
    • has no impact on the overall holdings of assets held by the non-government sector $-for-$.
    • reduces the capacity of the private sector to borrow from banks because they use their deposits to buy the bonds.
  • 5. Only one of the following statements can be true when you observe rising government bond yields for new issues:
    • Government spending is becoming more expensive.
    • Bond prices are falling in response to demand.
    • Government spending is increasing the cost of borrowing for private investors.

Sorry, quiz 77 is now closed.

You can find the answers and discussion here

This Post Has 3 Comments

  1. Bill –

    I have previously explained why your answer to question 2 is wrong. It is disappointing that you are repeating the same error.

    It may only be a semantic error, but most of your Saturday Quiz answers depend on semantics.

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