Saturday Quiz – May 30, 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 #11

• 1. A return to a fixed exchange rate system would
• provide the basis for more instability in the international financial markets and undermine the capacity of the national government to control inflation more easily without having to increase unemployment.
• provide the capacity for national governments to resist hedge fund attacks on the currency and permit more effective trade contracts to be signed.
• provide the basis for more stability in the international financial markets and allow national governments to control inflation more easily without having to increase unemployment
• 2. The crucial difference between a monetary system based on the gold standard world and a fiat currency monetary is
• that under the former system, the national government could not use net spending to achieve full employment.
• that under the former system, the national government had to issue debt to cover spending above taxation.
• that under the former system, excessive national government spending led to inflation.
• 3. In a fiat monetary system, the concept of debt monetisation is inapplicable because
• the central bank can set whatever interest rate it likes subject to its inflation targets.
• the central bank has to manage bank reserves if it wants to target a positive interest rate.
• the central bank is independent from the treasury and doesn't have to defend the exchange rate any longer.
• 4. Under the gold standard, a country with a chronic balance of payments deficit would face
• an exchange rate collapse.
• constant domestic recession.
• constant inflationary pressures.
• 5. Under a fiat monetary system, the absence of convertibility means
• 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.
• there is no reason for people to hold currency as a hedge against gold price falls.
• that the currency is only convertible into government bonds rather than gold.

Sorry, quiz 11 is now closed.

scroll down to find the answers and explanation below.

Quiz #11 answers

• 1. A return to a fixed exchange rate system would

Answer: provide the basis for more instability in the international financial markets and undermine the capacity of the national government to control inflation more easily without having to increase unemployment.

Explanation: Please read Gold standard and fixed exchange rates - myths that still prevail or post a comment for further discussion.

• 2. The crucial difference between a monetary system based on the gold standard world and a fiat currency monetary is

Answer: that under the former system, the national government had to issue debt to cover spending above taxation.

Explanation: Please read Gold standard and fixed exchange rates - myths that still prevail or post a comment for further discussion.

• 3. In a fiat monetary system, the concept of debt monetisation is inapplicable because

Answer: the central bank has to manage bank reserves if it wants to target a positive interest rate.

Explanation: Please read Gold standard and fixed exchange rates - myths that still prevail or post a comment for further discussion.

• 4. Under the gold standard, a country with a chronic balance of payments deficit would face

Answer: constant domestic recession.

Explanation: Please read Gold standard and fixed exchange rates - myths that still prevail or post a comment for further discussion.

• 5. Under a fiat monetary system, the absence of convertibility means

Answer: 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.

Explanation: Please read Gold standard and fixed exchange rates - myths that still prevail or post a comment for further discussion.