Quiz #17 answers

• 1. If more people flow out of employment into unemployment than flow into employment from unemployment in any month, then the unemployment rate will

Answer: cannot tell because we do not know what the flows between the labour force and non-participation were.

Explanation: Go to What can the gross flows tell us? to learn more or post a comment if you need more information.

• 2. In a fixed coupon government bond auction, the higher is the demand for the bonds

Answer: the lower the yields will be at that asset maturity but this tells us nothing about the effect of budget deficits on short-term interest rates.

Explanation: Go to D for debt bomb; D for drivel to learn more or post a comment if you need more information.

• 3. The automatic stabilisers that are built into fiscal policy ensure that

Answer: every decline in non-government spending will be attenuated by the rise in the budget deficit.

Explanation: Go to Nobel prize winner sounding a trifle modern moneyish to learn more or post a comment if you need more information.

• 4. A sovereign government does not have to issue debt to finance its spending. But the more public debt it voluntarily issues

Answer: the greater is non-government wealth held in the form of public debt.

Explanation: Go to Debt is not debt to learn more or post a comment if you need more information.

• 5. It is argued that the deleveraging of the Japanese private sector helped Japan avoid recession in the 1990s because the increased savings provided the finance for the huge budget deficits.

Answer: This statement is incorrect because the saving intentions of the private sector would have been thwarted if the government deficits had not have provided enough spending to allow the economy to grow.

Explanation: Go to D for debt bomb; D for drivel to learn more or post a comment if you need more information.