Saturday Quiz – December 11, 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 #90

• 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:
• biased downwards thus indicating, at any point in the business cycle, that the government fiscal stance is less expansionary than it actually is.
• biased upwards thus indicating, at any point in the business cycle, that the government fiscal stance is more expansionary than it actually is.
• difficult to assess because their forecasts are subject to forecasting inaccuracy.
• 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:
• 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".
• reduce the capacity of the private sector to save because they will require cuts backs in the deficit to support the repayments.
• reduce the room $-for-$ for other non-inflationary discretionary deficit spending because they will "fill up the spending gap" more quickly.
• 3. When a sovereign government issues debt it logically:
• increases the financial assets that are held by the non-government sector $-for-$.
• has no impact on the overall holdings of financial 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.
• 4. Only one of the following statements is definitely true when you observe rising government bond yields for new issues:
• Government spending is becoming more expensive.
• Bond prices are falling in response to falling demand.
• Government spending is increasing the cost of borrowing for private investors.
• 5. Premium question: Open market operations as a means of ensuring that levels of bank reserves are consistent with the policy target becomes redundant if the central bank pays a positive interest rate on overnight reserves held by the commercial banks (ignore any reserve requirements in place when answering).
• True
• False
• Maybe

Sorry, quiz 90 is now closed.

You can find the answers and discussion here