Saturday Quiz – March 2, 2013

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 questions. Your results are only known to you and no records are retained.

1. An advantage of budget deficits is that the non-government sector becomes wealthier when a sovereign government issues debt that is purchased by private wealth holders.

2. In a fixed coupon government bond auction, the higher is the demand for the bonds the lower the yields will be at that asset maturity which suggests that higher budget deficits will eventually drive short-term interest rates down.

3. In a situation where the private domestic sector decides to lift its saving ratio, the economy can still grow even if the national government had decided to impose fiscal austerity.

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    3 Responses to Saturday Quiz – March 2, 2013

    1. I am not clear on my error in item 3. If the private sector increased its savings rate to 100% I don’t see how the economy could grow. Any smaller amount would still impede growth unless one might equate savings with the equivalent of spending by the entity that received the savings. In any case turnover might enter into this equation.

    2. bill says:

      Dear Thomas (at 2013/03/05 at 3:09)

      It would be a very weird economy with no household consumption but the economy could still “grow” if the government sector or foreigners purchased all the output. All government spending could be spent on consumption goods and then handed out to the private sector to sustain the workforce while foreigners spent up big on the rest of the output.

      But within realistic ranges, a rising household saving ratio can be offset by a growing external surplus, even if there is fiscal drag on aggregate demand.

      best wishes

    3. But your question posited austere government policies leaving only the foreign sector to take up the slack.

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