Quiz #62 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 will typically be:

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

• 2. Rising public debt levels at constant interest rates increase the volume of interest servicing payments that have to be made. These payments will:

Answer: not reduce the room $-for-$ for other non-inflationary discretionary deficit spending because increasing imports will keep opening the spending gap that has to be "filled".

• 3. Under 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.

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

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

• 5. Rising government bond yields for new issues indicate:

Answer: that bond prices are falling in response to demand.