Saturday Quiz – June 27, 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 #15

• 1. Japan was able to keep interest rates at zero for 15 or more years because
• the Bank of Japan did not issue enough bonds to fully drain the reserves added by the large daily fiscal deficits.
• the economy was in such bad shape that there was no demand for funds and so lenders had to take low returns.
• the Bank of Japan were convinced that inflation was under control.
• 2. Taxation revenue will rise as the budget deficits rise because
• the higher net spending increases economic activity and more people become employed.
• the higher net spending ultimately has to be paid for even if in the short-run the government is not revenue-constrained.
• the higher net spending requires higher tax rates so that people will demand more currency.
• 3. The government deficits may ultimately lead to higher tax rates being imposed
• because the government will need more money to continue spending.
• because ultimately, whether we like it or not, the public debt has to be paid back.
• if nominal demand increases too fast in relation to the real capacity levels.
• 4. The German fiscal rule to ban deficits and run balanced budgets would work
• if private investment was always growing strongly.
• if desired non-government saving was always zero.
• if both consumption and private investment was always growing strongly.
• 5. If the economy has unemployed workers but cannot produce any more real output then the government
• will generate inflation if it wants to achieve full employment.
• has to increase net spending until the spending gap is filled if it wants to achieve full employment.
• has to raise taxation if it wants to achieve full employment.

Sorry, quiz 15 is now closed.

scroll down to find the answers and explanation below.

Quiz #15 answers

• 1. Japan was able to keep interest rates at zero for 15 or more years because

Answer: the Bank of Japan did not issue enough bonds to fully drain the reserves added by the large daily fiscal deficits.

Explanation: Please read More back to fiat monetary system basics! for more information or post a comment if you are unsure.

• 2. Taxation revenue will rise as the budget deficits rise because

Answer: the higher net spending increases economic activity and more people become employed.

Explanation: Please read The budget deficits will increase taxation! for more information or post a comment if you are unsure.

• 3. The government deficits may ultimately lead to higher tax rates being imposed

Answer: if nominal demand increases too fast in relation to the real capacity levels.

Explanation: Please read The budget deficits will increase taxation! for more information or post a comment if you are unsure.

• 4. The German fiscal rule to ban deficits and run balanced budgets would work

Answer: if desired non-government saving was always zero.

Explanation: Please read Fiscal rules going mad for more information or post a comment if you are unsure.

• 5. If the economy has unemployed workers but cannot produce any more real output then the government

Answer: has to raise taxation if it wants to achieve full employment.

Explanation: Please read Bad luck if you are poor! for more information or post a comment if you are unsure.