Quiz #151 answers

• 1. Bank lending moved from being reserve-constrained to capital-constrained once the prudential authorities relaxed reserve ratio requirements and the Bank of International Settlements introduced the Basel framework for capital adequacy.

Answer: False

• 2. In an endogenous money system 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.

Answer: True

• 3. In the context of population ageing, the fact that a sovereign government is never financially constrained means that it will always be able to provide first-class health care.

Answer: False

• 4. By increasing tax rates a sovereign government increases its capacity to spend more without increasing inflation.

Answer: True

• 5. Premium Question: For a nation running a small current account deficit, the government budget will always be in deficit if the domestic private sector is spending less than it earns.

Answer: True