Quiz #14 answers

• 1. Countries that entered the current crisis with budget surpluses or smaller deficits will as a result

Answer: have no better or worse chance of minimising the real damage from the downturn.

Explanation: Please read Fiscal sustainability 101 - Part 3 for further material or post a comment if you want further explanation.

• 2. Rising long-term bond yields are evidence that

Answer: investors are diversifying their financial asset portfolios as their confidence grows.

Explanation: Please read Fiscal sustainability 101 - Part 3 for further material or post a comment if you want further explanation.

• 3. If the central bank does not pay interest to the bank's on overnight reserves, then deficit spending by the treasury

Answer: will reduce short-term interest rates unless the central bank offers an interest-bearing government bond to the banks.

Explanation: Please read Fiscal sustainability 101 - Part 3 for further material or post a comment if you want further explanation.

• 5. The automatic stabilisers

Answer: operate to attenuate the business cycle in both directions but usually require discretionary spending adjustments to ensure full employment.

Explanation: Please read Fiscal sustainability 101 - Part 3 for further material or post a comment if you want further explanation.

• 4. Which of the following is not an example of inflation?

Answer: The OPEC oil cartel announces that it will increase oil prices by 5 per cent per quarter over the next 5 years.

Explanation: Please read Fiscal sustainability 101 - Part 3 for further material or post a comment if you want further explanation.