The Weekend Quiz – November 19-20, 2016

Welcome to The Weekend Quiz, which used to be known as the Saturday Quiz! The quiz tests whether you have been paying attention or not to the blogs I post. See how you go with the following questions. Your results are only known to you and no records are retained.

Quiz #400

  • 1. When a sovereign government issues debt it logically:
    • Increases the financial assets that are held by the non-government sector $-for-$.
    • Has no impact on the overall holdings of financial assets held by the non-government sector $-for-$.
    • Reduces the capacity of the private sector to borrow from banks because they use their deposits to buy the bonds
  • 2. Only one of the following statements is definitely true when you observe rising government bond yields for new issues:
    • Government spending is increasing the cost of borrowing for private investors.
    • Bond prices are falling in response to falling demand.
    • Government spending is becoming more expensive.
  • 3. Open market operations as a means of ensuring that levels of bank reserves are consistent with the policy interest rate target becomes redundant if the central bank pays a positive interest rate on overnight reserves held by the commercial banks (ignore any reserve requirements in place when answering).
    • False
    • True
    • Maybe

Sorry, quiz 400 is now closed.

You can find the answers and discussion here

This Post Has 2 Comments

  1. I thought 3. was true. Perhaps it depends on the target rate, and whether it’s the same as the rate of interest on reserves or not (but I thought it always was). Will be interesting to see the solution.

  2. Yes, you are right. For 3 to be “true” the support rate on reserves should be equal to the policy rate, but it only says the support rate is positive, so we don’t know.

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