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Saturday Quiz – February 28, 2015

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. Say a currency-issuing government plans to achieve a fiscal surplus of 0.1 per cent of GDP in the next financial year. The aim underpins a massive fiscal shift from a fiscal deficit of around 3 per cent of GDP in that period. If the actual fiscal outcome remains in deficit at the end of the following financial year, the said government will be rightly considered not to have gone hard enough on its fiscal austerity plans.

2. Modern Monetary Theory (MMT) brings an understanding of the way central banks purchase and sell government bonds to manage liquidity in the overnight cash markets and thus sustain their target rate of interest. MMT also leads to the conclusion that a central bank could still increase interest rates even if a currency-issuing government instructed it to directly purchase treasury debt to facilitate the national government’s fiscal deficit.

3. Quantitative easing aims to stimulate aggregate demand by reducing long-term investment rates whereas deficit spending aims to stimulate aggregate demand via tax cuts or direct public spending. Both policies ultimately work by increasing the net financial assets held by the non-government sector even if QE is less (even largely) ineffective.

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    This Post Has One Comment
    1. 3/3 this week to make up for my 0/3 a couple of weeks ago. I also allow myself to double the stakes if I’m totally sure of the answer and got 5 out of a possible 6 this way.

      The problem with these multiple choice questions is that one monkey in eight will become a “MMT friend of the week”. We really shouldn’t allow ourselves any marks if we get the right answer for the wrong reasons.

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