Quiz #275

• 1. The automatic stabilisers built into the fiscal framework always work in a counter-cyclical fashion and if not unencumbered by discretionary policy changes, such as fiscal austerity, will eventually ensure that the government fiscal balance returns to its appropriate level.
• False
• True
• 2. The decision by the government to issue debt to the non-government sector to match its fiscal deficit instead of selling the same debt to the central bank:
• increases the financial assets (the bonds) 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 non-government sector to borrow from banks by draining bank reserves in return for the bonds.
• 3. The ability of a central bank to target a positive interest rate as an expression of its monetary policy stance is independent of the volume of debt it might purchase from the treasury (via primary issue) to match the government's fiscal deficit.
• False
• True

Quiz #275 answers

• 1. The automatic stabilisers built into the fiscal framework always work in a counter-cyclical fashion and if not unencumbered by discretionary policy changes, such as fiscal austerity, will eventually ensure that the government fiscal balance returns to its appropriate level.

Answer: False

• 2. The decision by the government to issue debt to the non-government sector to match its fiscal deficit instead of selling the same debt to the central bank:

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

• 3. The ability of a central bank to target a positive interest rate as an expression of its monetary policy stance is independent of the volume of debt it might purchase from the treasury (via primary issue) to match the government's fiscal deficit.

Answer: False