Quiz #369

• 1. 1 The IMF and the OECD equate the Non-Accelerating Inflation Rate of Unemployment (NAIRU) with their concept of full employment and they use the NAIRU to calibrate their structural deficit estimates. Accordingly, their estimates of the structural deficits will typically be:
• difficult to assess because their forecasts are subject to forecasting inaccuracy.
• biased upwards thus indicating, at any point in the economic cycle, that the government fiscal stance is more expansionary than it actually is.
• biased downwards thus indicating, at any point in the economic cycle, that the government fiscal stance is less expansionary than it actually is.
• 2. 3. Under a fiat monetary system, the absence of currency convertibility means that:
• the currency is only convertible into government bonds rather than gold.
• the government can motivate people to exchange goods and services in return for public spending by fining anyone of working age who walks down the street.
• there is no reason for people to hold currency as a hedge against a falling gold price.
• 3. When a sovereign government issues debt it logically:
• reduces the capacity of the private sector to borrow from banks because they use their deposits to buy the bonds.
• has no impact on the overall holdings of net financial assets in the non-government sector $-for-$.
• increases the net financial assets that are held by the non-government sector $-for-$.

Quiz #369 answers

• 1. 1 The IMF and the OECD equate the Non-Accelerating Inflation Rate of Unemployment (NAIRU) with their concept of full employment and they use the NAIRU to calibrate their structural deficit estimates. Accordingly, their estimates of the structural deficits will typically be:

Answer: biased upwards thus indicating, at any point in the economic cycle, that the government fiscal stance is more expansionary than it actually is.

• 2. 3. Under a fiat monetary system, the absence of currency convertibility means that:

Answer: the government can motivate people to exchange goods and services in return for public spending by fining anyone of working age who walks down the street.

• 3. When a sovereign government issues debt it logically:

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