Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of Modern…
Saturday Quiz – December 10, 2011
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 questions. Your results are only known to you and no records are retained.
Quiz #142
- 1. If the European Commission successfully alters the Treaty such that member states are forced to run balanced budgets and each year they successfully achieve that goal then the private sector in nations that run external deficits will always spend less than they earn.
- False
- True
- 2. If the OECD/IMF output gap measures are biased downwards, then other things equal, we will conclude that the government's discretionary fiscal stance is more expansionary than it actually is.
- False
- True
- 3. The non-government sector does not enjoy an increase in its asset holdings when a sovereign government issues debt.
- False
- True
- 4. In a fixed coupon government bond auction, the higher is the demand for the bonds the lower the yields will be at that asset maturity which suggests that higher budget deficits will eventually drive short-term interest rates down.
- False
- True
- 5. Premium question: In a situation where 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.
- False
- True
Sorry, quiz 142 is now closed.
You can find the answers and discussion here
Hi Bill,
I’ve just skimmed through Steven Keen’s paper “Debunking Macroeconomics” and find myself confused. As a non-economist most of it went straight over my head, but the bit that caught my eye was “that banks create money simply by an accounting operation: a loan extended to a borrower creates both debt and spending power “out of nothing””.
My simplistic understanding of MMT (I’m a complete novice) is that only governments can create money. I’m sure you’ve explained all this in one of your many bloggs, but I’d appreciate your guidance.
PS Keep up the great work you’re doing. One of the highlights of my day is to read your blogg and see how out of kilter the current set of leaders are with today’s problems. It’s very scary that there doesn’t appear to be a credible (political) alternative on offer.
2 out of 5 – back to Earth for me after my full house last week.
By the way, given the news in Europe in the last 48 hours, I thought I might share an article from the politics correspondent for the Irish Times, the ‘paper of record’ in Ireland:
http://www.irishtimes.com/newspaper/opinion/2011/1210/1224308868226.html
It is a disgusting article which would make Lord Haw-Haw blush. I was wondering if any suitably qualified MMTers could write a response to this ‘economic anaylsis’, and submit it to the Times for publication? It would be really tragic if people continued to fall for this propaganda.
Stephen Terry: It’s as simple as can be: Only governments (and those helpful counterfeiters, of which there are too few) can create the basic money – state money, fiat money, high powered money, reserves, currency, cash, which are liabilities of the state. Just a case of the general fact that (except for taxes or other state actions) only you can create your own liabilities, debts. State money is the money accepted most widely – the only kind that the state accepts for final settlement of payments to the state.
Banks create “bank money”, bank deposits, bank notes, which are just debts, liabilities of the bank. When you take out a loan, or spend on a credit card, say buying a cheeseburger, you are exchanging your debt (at interest usually, due in the future) for bank money. When you spend, you give McDonalds’s the “bank money” of your credit card’s bank , and unfortunately you retain the debt to this bank :-(. Because the state stands behind the bank in several ways, this bank money is accepted almost everywhere, (nice work if you can get it) – unlike your direct debt – it works better than paying for your cheeseburgers by printing up dollar bills with your picture on them, unfortunately, but that privilege is given only to the banks.
A classic statement on this is Minsky’s: Everyone can create “money” – the problem is getting others to accept it.