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The Weekend Quiz – February 20-21, 2016

Welcome to The Weekend Quiz, which used to be known as the 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. If the private domestic sector spends less than it earns and the nation runs a small external deficit, then the government fiscal position will always be in deficit at all levels of national income.

2. Under current institutional arrangements, a central bank can easily purchase treasury debt directly to satisfy accounting arrangements relating to the national government’s fiscal deficit (that is, “monetise the deficit”) while still targeting a positive short-term policy rate.

3. Assume the current public debt to GDP ratio is 100 per cent and that central banks keep nominal interest rates and inflation constant and zero. Governments that promote fiscal austerity, claim they can reduce the the public debt to GDP ratio by pushing the primary fiscal position (balance net of interest payments on outstanding debt) into surplus even if the austerity cause real GDP growth to fall into recession. Under the circumstances outlined, this claim is correct.

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