Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of Modern…
The Weekend Quiz – February 10-11, 2018
Welcome to The Weekend 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 #464
- 1. In the endogenous money system that exists today, a central bank cannot simultaneously reduce bank lending and maintain a given positive target interest rate by increasing the rate that it provides reserves on demand to the commercial banks.
- False
- True
- 2. The fact that a sovereign government is never financially constrained means that it will always be able to provide first-class health care to an ageing population should it have the political will to do so.
- False
- True
- 3. Whether the government records a fiscal deficit when the domestic private sector is spending less than it earns depends on the size of the external deficit.
- False
- True
Sorry, quiz 464 is now closed.
You can find the answers and discussion here
Two out of three again! Q3 wrong. You’d think I’d have the sectoral balances sorted by now!
1 out of 3. Shameful.
I got the sectoral balance right though.
I have seen question two quite a few times now but still got it wrong.
I take issue with question two. I think about the real resource constraint too! What if your country is just too primitive at the moment to give first class health care because you lack the technology?
We certainly don\’t expect ancient Mayan, Roman, or Chinese civilization to treat cataracts by replacing the lens. They have a real resource constraint!
But then one can argue whatever they were doing in medical terms were first class in their days already. One can also say that a nation can always afford to train professional and build hospitals.
One would be right in saying that too.
=)
I also take issue with question 1. Central banks do not have a direct influence on the supply of and demand for credit so it is true that they cannot directly influence bank lending. However you frame the question in such a way that the implication is that the central bank can never lower bank lending using a higher deposit rate on reserves as a matter of logical necessity.
It is highly probable that in normal conditions higher bank rate will cause higher lending rates which will generally reduce the quantity of new lending at least relative to the amount of lending in a counterfactual scenario.
3/3!
But I think it was a fluke.
Sometimes I just think – what is my gut reaction based on novice understanding of MMT? – then answer the opposite.
It is also a good strategy in life – go against your immediate instincts – usually helps with marriage, children, bosses….