Quiz #40

• 1. If a national government brings in a fiscal rule that the budget is required to be in balance at all times then discretionary fiscal policy and monetary policy together will always be pro-cyclical.
• False
• True
• 2. The imposition of a fiscal rule at the national government level that the budget is required to be in balance at all times would eliminate budget swings driven by the automatic stabilisers.
• False
• True
• 3. The paradox of thrift tells us that recessions are inevitable unless the government can persuade households to save less.
• False
• True
• 4. While it is true that the central bank can always set the interest rate it desires, credit ratings agencies can still force governments to pay higher returns on its borrowings at longer maturities by downgrading the quality of the sovereign debt.
• False
• True
• 5. There is worry that the large increase in bank reserves in various countries that have resulted from the fiscal and monetary policy efforts will be lend out and create inflation as the recovery gathers pace. However, the only way that they will be reduced is through a combination of government transactions with the non-government sector including running a budget surplus; issuing public debt; the central bank selling gold or foreign exchange etc.
• False
• True
• Bonus Question: Santa Claus is actually a secret agent for the socialist welfare state (by giving handouts to everyone) and should be subject to fiscal rules which would force him/her to tax all children the same amount as the gift so as to teach them fiscal prudence.
• Surely if you want a chance at 6 out of 6
• False
• True

Quiz #40 answers

• 1. If a national government brings in a fiscal rule that the budget is required to be in balance at all times then discretionary fiscal policy and monetary policy together will always be pro-cyclical.

Answer: True

Explanation: Please see On voluntary constraints that undermine public purpose for more information or post a comment.

• 2. The imposition of a fiscal rule at the national government level that the budget is required to be in balance at all times would eliminate budget swings driven by the automatic stabilisers.

Answer: False

Explanation: Please see On voluntary constraints that undermine public purpose for more information or post a comment.

• 3. The paradox of thrift tells us that recessions are inevitable unless the government can persuade households to save less.

Answer: False

Explanation: Please see When ideology blinds us to the solution for more information or post a comment.

• 4. While it is true that the central bank can always set the interest rate it desires, credit ratings agencies can still force governments to pay higher returns on its borrowings at longer maturities by downgrading the quality of the sovereign debt.

Answer: False

Explanation: Please see Time to outlaw the credit rating agencies for more information or post a comment.

• 5. There is worry that the large increase in bank reserves in various countries that have resulted from the fiscal and monetary policy efforts will be lend out and create inflation as the recovery gathers pace. However, the only way that they will be reduced is through a combination of government transactions with the non-government sector including running a budget surplus; issuing public debt; the central bank selling gold or foreign exchange etc.

Answer: True

Explanation: Please see Bernanke should quit or be sacked for more information or post a comment.

• Bonus Question: Santa Claus is actually a secret agent for the socialist welfare state (by giving handouts to everyone) and should be subject to fiscal rules which would force him/her to tax all children the same amount as the gift so as to teach them fiscal prudence.

Answer: Surely if you want a chance at 6 out of 6

Explanation: My anti-Xmas statement.