Quiz #336 answers

• 1. Financial market commentators watch movements in government bond yields as a guide to the state of confidence in the capacity of the respective governments to honour their liabilities. In this context, the commentators are correct when they conclude that rising yields on a particular 10-year bond yields are a sign that bond markets believe the assets to be riskier and are demanding increased risk premiums for them.

Answer: False

• 2. Continually expanding the money supply will eventually lead to inflation.

Answer: False

• 3. While a currency-issuing government does not have to issue debt to the non-government sector to match its deficit spending, it does reduce the inflation risk embodied in the spending because it drains the purchasing power of the private sector which gives itself more nominal spending space.

Answer: False