Quiz #13 answers

• 1. It is reported that large international buyers of US Government treasury bonds are getting worried that the US deficit is getting too large. If they stop buying the bonds then

Answer: this may drive up treasury bond yields but cannot reduce the capacity of the US Government to service its spending program.

Explanation: Please read Public ownership rules airport rankings! for further material or post a comment if you want further explanation.

• 2. The fact that the US dollar is the strongest international currency and is in high demand by international investors (including foreign governments) means that the US Government

Answer: has no greater capacity to engage in fiscal expansion than any other sovereign government.

Explanation: Please read Public ownership rules airport rankings! for further material or post a comment if you want further explanation.

• 3. If investors started to worry about the size of the Australian Government deficit and demand for federal public debt fell

Answer: the rise in interest rates (yields) would reflect the desire of the Government to have higher interest rates.

Explanation: Please read Will we really pay higher interest rates? for further material or post a comment if you want further explanation.

• 4. Even if the government issues debt voluntarily in association with its deficits, the public debt is still

Answer: is a benefit to existing investors who voluntarily choose them at the issue prices over holding other assets including low return bank reserves.

Explanation: Please read Will we really pay higher interest rates? for further material or post a comment if you want further explanation.

• 5. When the Australian government issues debt it logically

Answer: has no impact on the overall holdings of assets held by the non-government sector $-for-$.

Explanation: Please read Will we really pay higher interest rates? for further material or post a comment if you want further explanation.