Quiz #379

• 1. The more public debt a sovereign government voluntarily issues to match its fiscal deficits:
• the less is the volume of investment funds in the non-government sector that can be used for other investments.
• the greater is non-government wealth held in the form of public debt.
• the more difficult it is for banks to attract deposits to initiate loans from.
• 2. When an external deficit and public deficit coincide, there must be a private sector deficit, which means that governments can only really run fiscal deficits safely to support a private sector surplus, when net exports are strong.
• False
• True
• 3. In a standard fixed coupon government bond auction, the higher is the demand for the bonds:
• the lower will be the yields on the issued bond, which tells us nothing about the effect of fiscal deficits on short-term interest rates.
• the lower will be the yields on the issued bond, suggesting that higher fiscal deficits drive short-term interest rates down.
• the higher will be the yields on the issued bond, suggesting higher fiscal deficits drive short-term interest rates down.

Quiz #379 answers

• 1. The more public debt a sovereign government voluntarily issues to match its fiscal deficits:

Answer: the greater is non-government wealth held in the form of public debt.

• 2. When an external deficit and public deficit coincide, there must be a private sector deficit, which means that governments can only really run fiscal deficits safely to support a private sector surplus, when net exports are strong.

Answer: False

• 3. In a standard fixed coupon government bond auction, the higher is the demand for the bonds:

Answer: the lower will be the yields on the issued bond, which tells us nothing about the effect of fiscal deficits on short-term interest rates.