Quiz #28
- 1. When a person repays a bank loan using actual cash the bank extinguishes the loan (reduces asset) but there is no liability adjustment because the payment did not come from the person running down a deposit account (a liability to the bank). So given the cash doesn't get destroyed by the bank this transaction creates a change in the net financial asset position within the non-government sector.
- 2. In a situation where the private domestic sector decides to lift its saving ratio we cannot conclude that the national government has to increase its net spending (deficit) to avoid employment losses.
- 3. Mainstream economic theory adopts a government budget constraint framework to analyse the consequences of fiscal policy and predicts that budget deficits now result in higher taxes and interest rates in the future. Assume that framework was an accurate depiction of the monetary system. We would then also conclude that if you want low interest rates then surpluses are better and the relative size of government in the economy has to be smaller.
- 4. An employment guarantee system administered by a national currency-issuing government is not financially sustainable if the entire labour force was working in it because then there would be no-one left to pay taxes.
- 5. In a fiat monetary system (for example, US or Australia) with an on-going external deficit, if you desire the domestic private sector to reduce its overall debt levels without employment losses, then you have to support the national government continually increasing the budget deficit in line with the private de-leveraging process.
Quiz #28 answers
- 1. When a person repays a bank loan using actual cash the bank extinguishes the loan (reduces asset) but there is no liability adjustment because the payment did not come from the person running down a deposit account (a liability to the bank). So given the cash doesn't get destroyed by the bank this transaction creates a change in the net financial asset position within the non-government sector.
Answer: False
Explanation: You might like to review In the spirit of debate my reply Part 2 for further information or post a comment.
- 2. In a situation where the private domestic sector decides to lift its saving ratio we cannot conclude that the national government has to increase its net spending (deficit) to avoid employment losses.
Answer: True
Explanation: You might like to review In the spirit of debate my reply Part 2 for further information or post a comment.
- 3. Mainstream economic theory adopts a government budget constraint framework to analyse the consequences of fiscal policy and predicts that budget deficits now result in higher taxes and interest rates in the future. Assume that framework was an accurate depiction of the monetary system. We would then also conclude that if you want low interest rates then surpluses are better and the relative size of government in the economy has to be smaller.
Answer: False
Explanation: You might like to review In the spirit of debate my reply Part 2 for further information or post a comment.
- 4. An employment guarantee system administered by a national currency-issuing government is not financially sustainable if the entire labour force was working in it because then there would be no-one left to pay taxes.
Answer: False
Explanation: You might like to review In the spirit of debate my reply Part 3 for further information or post a comment.
- 5. In a fiat monetary system (for example, US or Australia) with an on-going external deficit, if you desire the domestic private sector to reduce its overall debt levels without employment losses, then you have to support the national government continually increasing the budget deficit in line with the private de-leveraging process.
Answer: True
Explanation: You might like to review In the spirit of debate my reply Part 2 for further information or post a comment.