Quiz #48

• 1. Eurozone nations with strong export positions such as Germany are more like a sovereign nation such as the UK or the US than they they are like Greece when it comes to dealing with a bank run within their own borders.
• False
• True
• 2. The Chinese government can always convert its US dollar holdings back into its own currency, although the increase the supply of US dollars into the foreign exchange market would provoke a depreciation of the US dollar.
• False
• True
• 3. Assume there is a situation where private bond markets are driving up yields on long-maturity public bonds. The central bank can always maintain whatever yields the government desires at every maturity. In this situation the central bank could hold yields constant but would be paying:
• more for the bonds than the private markets were prepared to pay.
• less for the bonds than the private markets were prepared to pay.
• there is not enough information to answer. It depends on the maturity in question.
• 4. While continuous national governments deficits are possible if the non-government sector desires to save, they do imply continuously rising public debt levels as a percentage of GDP.
• False
• True
• 5. A budget deficit that is equivalent to 5 per cent of GDP is always more expansionary in terms of nominal GDP growth than a budget deficit that is equivalent to 3 per cent of GDP but the actual number should not become the policy focus.
• False
• True

Quiz #48 answers

• 1. Eurozone nations with strong export positions such as Germany are more like a sovereign nation such as the UK or the US than they they are like Greece when it comes to dealing with a bank run within their own borders.

Answer: False

Explanation: Please see Europe bailout or exit? for more information or post a comment.

• 2. The Chinese government can always convert its US dollar holdings back into its own currency, although the increase the supply of US dollars into the foreign exchange market would provoke a depreciation of the US dollar.

Answer: False

Explanation: Please see A modern monetary theory lullaby for more information or post a comment.

• 3. Assume there is a situation where private bond markets are driving up yields on long-maturity public bonds. The central bank can always maintain whatever yields the government desires at every maturity. In this situation the central bank could hold yields constant but would be paying:

Answer: more for the bonds than the private markets were prepared to pay.

Explanation: Please see The vandals are gathering for more information or post a comment.

• 4. While continuous national governments deficits are possible if the non-government sector desires to save, they do imply continuously rising public debt levels as a percentage of GDP.

Answer: False

Explanation: Please see A modern monetary theory lullaby for more information or post a comment.

• 5. A budget deficit that is equivalent to 5 per cent of GDP is always more expansionary in terms of nominal GDP growth than a budget deficit that is equivalent to 3 per cent of GDP but the actual number should not become the policy focus.

Answer: False

Explanation: Please see A modern monetary theory lullaby for more information or post a comment.