Quiz #33

• 1. In a fiat monetary system, government borrowing will push the interest rate up.
• False
• True
• 2. When the government repays debt it drives the interest rate down.
• False
• True
• 3. The central bank has no greater capacity under fixed exchange rates to defend its currency against a short-selling speculative attacks than it has under a system of flexible exchange rates.
• False
• True
• 4. Within a narrow band, the central bank can always control the short-term interest rate in a fixed exchange rate system because there is never a constraint on the governments ability to add to bank reserves.
• False
• True
• 5. The Reserve Bank of Australia believes that in the long-run the real economy is not influenced by monetary variables (so interest rate rises do not have real effects). This is consistent with Phelps's view that workers' inflation expectations converge on the actual inflation rate, and, at the point, the economy is deemed to be at full employment no matter what the actual unemployment rate happens to be.
• False
• True

Quiz #33 answers

• 1. In a fiat monetary system, government borrowing will push the interest rate up.

Answer: True

Explanation: Please read Functional finance and modern monetary theory for further information or post a question on the comments page for clarification.

• 2. When the government repays debt it drives the interest rate down.

Answer: True

Explanation: Please read Functional finance and modern monetary theory for further information or post a question on the comments page for clarification.

• 3. The central bank has no greater capacity under fixed exchange rates to defend its currency against a short-selling speculative attacks than it has under a system of flexible exchange rates.

Answer: True

Explanation: Please read An international currency? Hopefully not! for further information or post a question on the comments page for clarification.

• 4. Within a narrow band, the central bank can always control the short-term interest rate in a fixed exchange rate system because there is never a constraint on the governments ability to add to bank reserves.

Answer: False

Explanation: Please read An international currency? Hopefully not! for further information or post a question on the comments page for clarification.

• 5. The Reserve Bank of Australia believes that in the long-run the real economy is not influenced by monetary variables (so interest rate rises do not have real effects). This is consistent with Phelps's view that workers' inflation expectations converge on the actual inflation rate, and, at the point, the economy is deemed to be at full employment no matter what the actual unemployment rate happens to be.

Answer: True

Explanation: Please read Those bad Keynesians are to blames for further information or post a question on the comments page for clarification.