Quiz #527

• 1. The Australian Treasury equates the Non-Accelerating Inflation Rate of Unemployment (NAIRU) with full employment and uses this to calibrate their structural deficit estimates. Accordingly, the structural deficits reported will typically be:
• biased downwards, indicating, that at any point in the business cycle, that the government fiscal stance is less expansionary than it actually is.
• biased upwards, indicating, that at any point in the business cycle, that the government fiscal stance is more expansionary than it actually is.
• difficult to assess because the Treasury forward estimates are subject to forecasting inaccuracy.
• 2. In a fiat monetary system, the absence of currency convertibility means:
• there is no reason for people to hold currency as a hedge against gold price falls.
• that the currency is only convertible into government bonds rather than gold.
• that the government can motivate people to exchange goods and services in return for public spending by fining anyone of working age who walks down the street.
• 3. When a sovereign government issues debt it logically:
• increases the assets that are held by the non-government sector $-for-$.
• has no impact on the overall holdings of 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.

Quiz #527 answers

• 1. The Australian Treasury equates the Non-Accelerating Inflation Rate of Unemployment (NAIRU) with full employment and uses this to calibrate their structural deficit estimates. Accordingly, the structural deficits reported will typically be:

Answer: biased upwards, indicating, that at any point in the business cycle, that the government fiscal stance is more expansionary than it actually is.

• 2. In a fiat monetary system, the absence of currency convertibility means:

Answer: that the government can motivate people to exchange goods and services in return for public spending by fining anyone of working age who walks down the street.

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

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