Quiz #274 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. A central bank cannot simultaneously reduce bank lending and maintain a given positive target interest rate by increasing the rate at which it provides reserves on demand to the commercial banks.

Answer: True

• 3. For a nation running a small current account deficit, the government fiscal balance will always be in deficit if the domestic private sector is spending less than it earns.

Answer: True