Saturday Quiz – May 2, 2009

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 #7

• 1. Among the Australian Government debts are Benchmark Treasury Fixed Coupon Bonds on issue. There are about $A61 billion outstanding and maturing at various dates. Around $A6 billion of them mature in September 2009 and the coupon value (interest rate) is 7.5 per cent. So although the government is not financially constrained
• it is not true that the debt has to be paid back because the government can spend whenever it likes.
• it remains true that the debt has to be paid back but this does not require any trade-off between debt servicing and other public projects.
• it remains true that the debt has to be paid back and so the government will have to choose which projects have to be sacrificed to service the debt.
• 2. There is talk that the international ratings agencies may reduce the Australian Government's triple A bond rating if the deficit gets too large which may see higher short-term interest rates. If this occurs then we can
• legitimately conclude that the rising deficit has caused borrowing costs to rise.
• legitimately conclude that the ratings agencies do not understand that the government is not financially constrained.
• legitimately conclude that the central bank has tightened monetary policy.
• 3. The Federal Government has announced a number of major infrastructure projects that it intends to fund (for example, its broadband plan and its defence plan). Their ability to implement these plans depends on
• the availability of real resources suitable for use.
• the economy improving such that the automatic stabilisers increase tax revenue.
• the bond markets continuing to purchase government bonds.
• 4. The rising unemployment in Australia at present
• is due to international economic events associated with the global financial crisis.
• is due to the inadequate skills that the unemployed possess.
• is due to the Federal budget deficit not being large enough relative to GDP.
• 5. Higher government deficits may drive up interest rates if bond markets begin to get short of funds. This statement is false
• because interest rates are set in the private market and government debt has no real risk.
• because in modern monetary theory the government does not have a financial constraint.
• because the supply of treasury securities offered by the federal government is always equal to the newly created funds from the deficit.

Sorry, quiz 7 is now closed.

scroll down to find the answers and explanation below.

Quiz #7 answers

• 1. Among the Australian Government debts are Benchmark Treasury Fixed Coupon Bonds on issue. There are about $A61 billion outstanding and maturing at various dates. Around $A6 billion of them mature in September 2009 and the coupon value (interest rate) is 7.5 per cent. So although the government is not financially constrained

Answer: it remains true that the debt has to be paid back but this does not require any trade-off between debt servicing and other public projects.

Explanation: Please read Lucky he's not Treasurer anymore or post a comment for further discussion

• 2. There is talk that the international ratings agencies may reduce the Australian Government's triple A bond rating if the deficit gets too large which may see higher short-term interest rates. If this occurs then we can

Answer: legitimately conclude that the central bank has tightened monetary policy.

Explanation: Please read Ratings agencies and higher interest rates or post a comment for further discussion

• 3. The Federal Government has announced a number of major infrastructure projects that it intends to fund (for example, its broadband plan and its defence plan). Their ability to implement these plans depends on

Answer: the availability of real resources suitable for use.

Explanation: Please read Lucky he's not Treasurer anymore or post a comment for further discussion

• 4. The rising unemployment in Australia at present

Answer: is due to the Federal budget deficit not being large enough relative to GDP.

Explanation: Please read The OECD is at it again! or post a comment for further discussion

• 5. Higher government deficits may drive up interest rates if bond markets begin to get short of funds. This statement is false

Answer: because the supply of treasury securities offered by the federal government is always equal to the newly created funds from the deficit.

Explanation: Please read Lucky he's not Treasurer anymore or post a comment for further discussion