Quiz #542

• 1. The IMF and the OECD and a range of central banks equate the Non-Accelerating Inflation Rate of Unemployment (NAIRU) with their concept of full employment and they use the NAIRU estimates to calibrate their structural deficit estimates. Accordingly, the structural deficits will typically be:
• difficult to assess because their forecasts are subject to forecasting inaccuracy of the automatic stabilisers.
• biased upwards thus indicating that the government fiscal stance is more expansionary than it actually is.
• biased downwards thus indicating that the government fiscal stance is less expansionary than it actually is.
• 2. When a sovereign government issues debt it logically:
• reduces the capacity of the private sector to borrow from banks because they use their deposits to buy the bonds.
• has no initial impact on the overall holdings of financial assets held by the non-government sector.
• increases the assets that are initially held by the non-government sector $-for-$.
• 3. Only one of the following statements can be true when you observe rising government bond yields for new issues:
• Government spending is becoming more expensive.
• Bond prices are falling in response to demand.
• Government spending is increasing the cost of borrowing for private investors.

Quiz #542 answers

• 1. The IMF and the OECD and a range of central banks equate the Non-Accelerating Inflation Rate of Unemployment (NAIRU) with their concept of full employment and they use the NAIRU estimates to calibrate their structural deficit estimates. Accordingly, the structural deficits will typically be:

Answer: biased upwards thus indicating that the government fiscal stance is more expansionary than it actually is.

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

Answer: has no initial impact on the overall holdings of financial assets held by the non-government sector.

• 3. Only one of the following statements can be true when you observe rising government bond yields for new issues:

Answer: Bond prices are falling in response to demand.