Quiz #400

• 1. When a sovereign government issues debt it logically:
• Increases the financial assets that are held by the non-government sector $-for-$.
• Has no impact on the overall holdings of financial assets held by the non-government sector $-for-$.
• Reduces the capacity of the private sector to borrow from banks because they use their deposits to buy the bonds
• 2. Only one of the following statements is definitely true when you observe rising government bond yields for new issues:
• Government spending is increasing the cost of borrowing for private investors.
• Bond prices are falling in response to falling demand.
• Government spending is becoming more expensive.
• 3. Open market operations as a means of ensuring that levels of bank reserves are consistent with the policy interest rate target becomes redundant if the central bank pays a positive interest rate on overnight reserves held by the commercial banks (ignore any reserve requirements in place when answering).
• False
• True
• Maybe

Quiz #400 answers

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

Answer: Has no impact on the overall holdings of financial assets held by the non-government sector $-for-$.

• 2. Only one of the following statements is definitely true when you observe rising government bond yields for new issues:

Answer: Bond prices are falling in response to falling demand.

• 3. Open market operations as a means of ensuring that levels of bank reserves are consistent with the policy interest rate target becomes redundant if the central bank pays a positive interest rate on overnight reserves held by the commercial banks (ignore any reserve requirements in place when answering).

Answer: Maybe