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Saturday Quiz – September 18, 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.

Quiz #78

  • 1. The stronger is the the demand for public bonds at a government auction
    • the higher the yields will be at that asset maturity, which suggests that higher budget deficits will eventually drive short-term interest rates down.
    • the lower the yields will be at that asset maturity, which suggests that higher budget deficits will eventually drive short-term interest rates down.
    • the lower the yields will be at that asset maturity but this tells us nothing about the effect of budget deficits on short-term interest rates
  • 2. A sovereign government voluntarily issues debt to the private sector to match its spending. The more public debt it issues
    • the less is the volume of investment funds in the non-government sector that can be used for other investments.
    • the greater is non-government wealth held in the form of public debt.
    • the more difficult it is for banks to attract deposits to initiate loans from.
  • 3. When the government pays back funds that is has borrowed from the non-government sector the payments may
    • be inflationary if by the time the bonds mature the economy is growing strongly so there will be too much money floating about.
    • be inflationary if the government payments to bond holders at maturity add more to nominal aggregate demand than the real economy can support given other policy settings.
    • not be inflationary because the sovereign government just has to credit the bank accounts of those who hold the bonds to repay them.
  • 4. When an external deficit and public deficit coincide, there must be a private sector deficit. This suggests that governments can only run budget deficits safely to support a private sector surplus, when net exports are strong.
    • True
    • False
    • Maybe
  • 5. When the private domestic sector decides to lift its saving ratio we cannot conclude that the national government has to increase its net spending (deficit) to avoid employment losses.
    • True
    • False
    • Maybe

Sorry, quiz 78 is now closed.

You can find the answers and discussion here

This Post Has One Comment

  1. This doesn’t relate to the quiz but I thought it may be of interest – Christopher Joye today writes:

    First, you need to understand that the RBA is an inflation-targeting central bank and has effectively dropped its second, legislated target of maximising employment growth. It did this formally with the consent of the government in 1996 via the ‘statement’ signed by the Governor and Treasurer Costello (I have posted at length on this in the past, including quotes from all the key actors in the 1980s and 1990s).

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