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Saturday Quiz – October 30, 2010

Welcome to the billy blog Saturday quiz. The quiz tests whether you have been paying attention over the last seven days. See how you go with the following five questions. Your results are only known to you and no records are retained.

1. Quite apart from whether they understand that they do not face any financial constraints, governments are now trying to reduce their budget deficits because they correctly understand that additional fiscal stimulus would increase the public debt ratios which would worsen their political positions.

2. The recent practice of large-scale quantitative easing (so-called printing money) in many nations and the fact that inflation is benign, strongly refutes the mainstream theory of inflation embodied in the Quantity Theory of Money, which claims that growth in the stock of money will be inflationary.

3. Bank lending is capital-constrained rather than reserve constrained. If the central bank forced banks to maintain a reserve ratio of 100 per cent then lending would also be reserve constrained.

4. In an endogenous money system, a central bank cannot reduce bank lending while maintaining its target monetary policy rate by increasing the rate that provides reserves to the commercial banks.

5. Premium Question: In the context of population ageing, the fact that a sovereign government is never financially constrained may become irrelevant in terms of their capacity to provide first-class health care and pensions given rising dependency ratios.

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    This Post Has 6 Comments
    1. Fellow readers,

      Please indulge a quick off-topic question:

      Is there a place where MMTers discuss the practical market effects of MMT vs Neo-Liberal thought? I am not an economist or academic, and like to read about economics primarily to help gain a better understanding of macro investing trends. I’d be interested in a place where trading ideas informed by MMT thinking are proposed and debated.

      Thanks, and again, sorry for this off-topic (and perhaps a bit gauche request),


    2. Greg: Is there a place where MMTers discuss the practical market effects of MMT vs Neo-Liberal thought?

      Closest to it that I know of is Warren’s place, which is natural since Warren’s background is in finance and trading rather than academics.

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