Quiz #425 answers

• 1. Quantitative easing aims to stimulate aggregate spending by reducing long-term investment rates whereas deficit spending aims to stimulate aggregate spending via tax cuts or direct public spending. Both policies ultimately work by increasing the net financial assets held by the non-government sector.

Answer: False

• 2. In this week's 2017-18 Fiscal Statement, the Australian government indicated that it aimed to achieve a fiscal surplus of 0.4 per cent of GDP by 2020-21 and trim the deficit every financial year in between. If the actual fiscal outcome remains in deficit by 2020-21, the Australian government will be rightly considered not to have gone hard enough on its fiscal austerity plans.

Answer: False

• 3. Modern Monetary Theory (MMT) brings an understanding of the way central banks purchase and sell government bonds to manage liquidity in the overnight cash markets and thus sustain their target rate of interest. MMT also leads to the conclusion that a central bank could still increase interest rates even if the US government instructed it to directly purchase treasury debt to match the national governments fiscal deficit.

Answer: True