Quiz #180 answers

• 1. As a matter of accounting, the financial assets held by the non-government sector rise $-for-$ when a sovereign government issues debt.

Answer: False

• 2. If yields rise on new bond issues then deficit spending by a currency-issuing government becomes more expensive.

Answer: False

• 3. In a fiat monetary system (for example, US or Australia) with an on-going external deficit that exceeds the public deficit (expressed as percentages of GDP), the domestic private sector cannot reduce its overall debt levels (by saving) without incurring employment losses.

Answer: True

• 4. The imposition of fiscal rules which aim to limit the discretionary capacity of governments to net spend bias fiscal policy towards counter-cyclical responses when private spending is weak.

Answer: False

• 5. Premium Question: Open market operations as a means of ensuring that levels of bank reserves are consistent with the policy target become redundant if the central bank pays a positive interest rate on overnight reserves held by the commercial banks (ignore any reserve requirements in place when answering).

Answer: False