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 – June 29-30, 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 #536
- 1. The private domestic sector will save overall even if the government fiscal balance is in surplus as long as net exports are positive.
- False
- True
- 2. The difference between quantitative easing and an increasing fiscal deficit is that the former creates no new net financial assets in the currency of issue.
- False
- True
- 3. A fiscal deficit that is equivalent to 5 per cent of GDP always signals a more expansionary fiscal intent from government than a deficit outcome that is equivalent to 3 per cent of GDP.
- False
- True
Sorry, quiz 536 is now closed.
You can find the answers and discussion here
3outa3! Again! I’m gonna need a bigger hat!
Todays quiz was unusually easy so I managed to get 3 out of 3.
But here is an important question to the MMT camp (which I am part of). I am very worried about the US New Green Deal using MMT theory to finance the “deal”. Searching this site I can only find 2 post about the NGD! And none of them is elaborating around the risk using new financial assets for something that is scientifically very uncertain, aka not proven or even tested against the rules of falsification (aka pseudo-science). What if AGW fails (the earth still in good shape 15 years in the future and with continued growth of CO2 by the asian contingent) as it has in spite of 50 years of doom-saying). Building large deficits through bad investments could be very counter-productive for the MMT-crowd in the the future.
I am very worried!
Thorleif,
See this working paper from the Levy Institute: http://www.levyinstitute.org/pubs/wp_931.pdf. There is no way to ‘scientifically test’ the impact of the GND since it hasn’t happened yet. What we can do is use the science we have to craft legislation that addresses the existential threat that is climate change to the best of our ability.
Bill,
I have a question regarding Q2. I understanding the QE is actually just a financial asset swap. But when the Fed pays a support rate on reserves, is it not injecting net financial assets? Mosler often says something like the national debt is the sum of outstanding reserves, treasuries and currency. But the support rate payments generate new reserves separate from federal spending approved by congress. If you have written on this already please point me in that direction. Or perhaps I am just confused.
3/3 again this week!
I’m getting better at spotting Bill’s linguistic trap me thinks.
I’ll crash and burn next week though.
Mr C Silva
“scientifically test’ the impact of the GND since it hasn’t happened yet”
Sorry but I think you are missreading my comment. I am speaking of AGW, not GND, and of the use of MMT to finance the New Green Deal (GND). I am of cource talking of scientifically testing the AGW hypothesis. As you surely know the greenhouse-effect of CO2 is not at all scientifically proved (but falsified in several aspects) regarding i.e the level of climate sensitivity (factor around 1-1,3 instead of factor 3). I am worried that the GND is based on the same false statements that the AGW camp have been running for now 50 years.
Using MMT for this “experiment” would be a bad idea I think. Public investments must be based on cost benefit analysis. So reducing CO2 too fast in the US could have very high costs but no overall impact at all on world total emissions.
Re QE
When FED buy bonds from banks they have to set the IOR-rate close to the funds-rate. When new bonds are sold (deficit-spending) by the Treasury the same amount could be shifted out from bankreserves.
Best regards
Mr C Silva
Re IOR
The FED is owned by the Treasury (and member banks) and their netincome is returned (to Treasury) via dividends. IOR-costs regarding trillions of excessive reserves is probably funded by the interest-dividends from the bonds, i.e by the Treasury on GB’s. Exactly how this works is not known outside FED/Treasury because the FED has never been properly reviewed by the public. Interest on bonds are normally due once a year compared to the short term IOR.
Best regards
@Thorlief: ” I am very worried about the US New Green Deal using MMT theory to finance the “deal” (as it applies to AGW)
Any investment in green energy will be useful because the ‘fuel’ is free (after once-off infrastructure costs). And all the filth resulting from burning fossil fuels (carcinogenic particulates, smog etc) is avoided as well – regardless of the reality of the role of CO2 in AGW, of which you are sceptical.
Dear Neil,
You said “…investment in green energy fuel is free”.
Please explain what you mean with that or “show me the money”.
Best regards