Quiz #23

• 1. The problem in the baby-sitting economy was that the cooperative were running a budget surplus which constrained the number of scrips that were available to exchange for baby-sitting services.
• False
• True
• 2. If private investors become saturated with Australian government debt issues as the deficits rise, their demand will drop and yields will rise for those maturities (say 10-year bonds). This spills over into increased borrowing costs for the private sector generally and reduces the desire to invest.
• False
• True
• 3. A country that has been running budget surpluses will have less capacity to deal with an economic downturn, despite what mainstream economists say. This is because to maintain spending growth in the face of rising fiscal drag, the private sector would have built up higher levels of debt than otherwise and face increased insolvency risk as a consequence.
• False
• True
• 4. The massive build-up of Chinese holdings of US government debt has allowed US citizens to enjoy a higher material standard of living at the expense of the residents of China.
• False
• True
• 5. Short-term interest rates are set by the central bank while the fiscal strategy manifests in tax and spending decisions by the government. Whereas the private sector cannot directly influence the interest rate target being set it can determine the size of the budget deficit at any point in time.
• False
• True
• 6. The US Federal Reserve is about to take over the New York Times and use its printing press to print more government bonds.
• Ridiculous
• True