Saturday Quiz – June 20, 2009

Welcome to the billy blog Saturday quiz. The quiz tests whether you have been paying attention over the last seven days.

This is a Special Big Apple Edition direct from New York.

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See how you go with the following five questions. Your results are only known to you and no records are retained.

Quiz #14

  • 1. Countries that entered the current crisis with budget surpluses or smaller deficits will as a result
    • have a better chance of minimising the real damage from the downturn because they have more fiscal room to provide stimulus.
    • have no better or worse chance of minimising the real damage from the downturn.
    • encounter less chance of stifling their recoveries through inflation.
  • 2. Rising long-term bond yields are evidence that
    • government borrowing is causing funds to dry up on that segment of the yield curve.
    • investors fear that the government will default on its debt or inflate it away.
    • investors are diversifying their financial asset portfolios as their confidence grows.
  • 3. If the central bank does not pay interest to the bank's on overnight reserves, then deficit spending by the treasury
    • will put too much money in the system which ultimately is inflationary if the spending gap closes.
    • will reduce short-term interest rates unless the central bank offers an interest-bearing government bond to the banks.
    • will push up short-term interest rates if investors sense that inflation will be higher.
  • 5. The automatic stabilisers
    • operate to attenuate the business cycle in both directions but usually require discretionary spending adjustments to ensure full employment.
    • will always get the budget back into balance because once growth resumes tax revenue rises and welfare spending falls.
    • will always ensure that the economy will approach full employment because if spending is below potential tax revenue will keep falling and welfare spending rising.
  • 4. Which of the following is not an example of inflation?
    • Firms adjust their prices upwards to normal capacity levels after discounting them during the recession to maintain market share.
    • The OPEC oil cartel announces that it will increase oil prices by 5 per cent per quarter over the next 5 years.
    • The price of imports rises because the exchange rate depreciates by 10 per cent.

Sorry, quiz 14 is now closed.

scroll down to find the answers and explanation below.















Quiz #14 answers

  • 1. Countries that entered the current crisis with budget surpluses or smaller deficits will as a result
  • Answer: have no better or worse chance of minimising the real damage from the downturn.

    Explanation: Please read Fiscal sustainability 101 - Part 3 for further material or post a comment if you want further explanation.

  • 2. Rising long-term bond yields are evidence that
  • Answer: investors are diversifying their financial asset portfolios as their confidence grows.

    Explanation: Please read Fiscal sustainability 101 - Part 3 for further material or post a comment if you want further explanation.

  • 3. If the central bank does not pay interest to the bank's on overnight reserves, then deficit spending by the treasury
  • Answer: will reduce short-term interest rates unless the central bank offers an interest-bearing government bond to the banks.

    Explanation: Please read Fiscal sustainability 101 - Part 3 for further material or post a comment if you want further explanation.

  • 5. The automatic stabilisers
  • Answer: operate to attenuate the business cycle in both directions but usually require discretionary spending adjustments to ensure full employment.

    Explanation: Please read Fiscal sustainability 101 - Part 3 for further material or post a comment if you want further explanation.

  • 4. Which of the following is not an example of inflation?
  • Answer: The OPEC oil cartel announces that it will increase oil prices by 5 per cent per quarter over the next 5 years.

    Explanation: Please read Fiscal sustainability 101 - Part 3 for further material or post a comment if you want further explanation.

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