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).