Quiz #215

• 1. When economic growth resumes, the automatic stabilisers work in a counter-cyclical fashion to ensure that the government budget balance returns to its appropriate level.
• False
• True
• 2. The Modern Monetary Theory (MMT) analysis of central bank liquidity management operations tells us that if such a bank was targeting a 4 per cent policy rate, it would still be able to directly purchase all the Treasury debt that might be issued to match a national government's budget deficit without compromising that monetary policy stance.
• False
• True
• 3. When a sovereign government issues debt to match its net spending (budget deficit) it logically:
• increases the financial assets that are held by the non-government sector $-for-$.
• has no impact on the overall holdings of financial assets held by the non-government sector $-for-$.
• reduces the capacity of the overall private sector to borrow from banks because it drains the deposits in the banking system to buy the bonds.

Quiz #215 answers

• 1. When economic growth resumes, the automatic stabilisers work in a counter-cyclical fashion to ensure that the government budget balance returns to its appropriate level.

Answer: False

• 2. The Modern Monetary Theory (MMT) analysis of central bank liquidity management operations tells us that if such a bank was targeting a 4 per cent policy rate, it would still be able to directly purchase all the Treasury debt that might be issued to match a national government's budget deficit without compromising that monetary policy stance.

Answer: True

• 3. When a sovereign government issues debt to match its net spending (budget deficit) it logically:

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