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Saturday Quiz – October 18, 2014

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 #291

  • 1. While bank lending is capital constrained a further constraint on excess lending would be created by regulators if a 100 per cent reserve ratio (that is, all loans had to be backed by reserves) was imposed.
    • False
    • True
  • 2. Assume that the national accounts of a nation is reveal that its external surplus is equivalent to 2 per cent of GDP and the private domestic sector is saving overall 3 per cent of GDP. We would also observe:
    • A fiscal surplus equal to 5 per cent of GDP.
    • A fiscal deficit equal to 5 per cent of GDP.
    • A fiscal surplus equal to 1 per cent of GDP.
    • A fiscal deficit equal to 1 per cent of GDP.
  • 3. Assume the current public debt to GDP ratio is 100 per cent and that the nominal interest rate and the inflation rate remain constant and zero. Under these circumstances it is impossible to reduce a public debt to GDP ratio, using an austerity package if the rise in the primary surplus to GDP ratio is always exactly offset by negative GDP growth rate of the same percentage value.
    • False
    • True

Sorry, quiz 291 is now closed.

You can find the answers and discussion here

This Post Has 4 Comments

  1. G’day Bill,
    My problem is I don’t yet understand the terminology, which can be dense for someone outside the economic sphere.
    e.g ” a 100% reserve ratio” “public debt to GDP ratio” [in lieu of what?]
    Last weeks questions were even worse. But I do I think get the gist of MMT.

    And I saw today you have a namesake, Rodger Malcolm Mitchell, writing about a similar theory called “Monetary Sovereignty”; This article on Australia from last May was a good one I think;

  2. Miguel,

    If I understand correctly, this question is just a slightly more complicated version of the “banks are not reserve restrained” tenet of MMT. With 100% reserve requirements, banks without enough capital/reserves to meet that ratio will not stop lending, they will continue seeking to lend money at favorable rates, and simply look for reserves after having lent the money, by borrowing money from other banks, or from the Feds discount window as a last resort.

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