The Weekend Quiz – May 11-12, 2019

Welcome to The Weekend Quiz. The quiz tests whether you have been paying attention or not to the blog posts that I post. See how you go with the following questions. Your results are only known to you and no records are retained.

Quiz #529

• 1. In a fixed coupon government bond auction, the higher is the demand for the bonds:
• the lower the yields will be at that asset maturity but this tells us nothing about the effect of fiscal deficits on short-term interest rates
• the lower the yields will be at that asset maturity which suggests that higher fiscal deficits will eventually drive short-term interest rates down
• the higher the yields will be at that asset maturity which suggests that higher fiscal deficits will eventually drive short-term interest rates down
• 2. When the government borrows from the non-government sector it eventually has to pay the bonds back on maturity. This will:
• not be inflationary because the sovereign government just has to credit the bank accounts of those who hold the bonds to repay them.
• be inflationary if the government payments to bond holders at maturity add more to nominal aggregate demand than the real economy can support given other policy settings.
• be inflationary if by the time the bonds mature the economy is growing strongly so there will be too much money floating about.
• 3. When an external deficit and public deficit coincide, there must be a private sector deficit, which means that governments can only really run fiscal deficits to support a private sector surplus, when net exports are strong.
• False
• True

Sorry, quiz 529 is now closed.

You can find the answers and discussion here