- 1 The IMF and the OECD equate the Non-Accelerating Inflation Rate of Unemployment (NAIRU) with their concept of full employment and they use the NAIRU 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. For a sovereign nation entrenched in recession, 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. 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.