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The Weekend Quiz – August 26-27, 2017

Welcome to The Weekend Quiz. The quiz tests whether you have been paying attention or not to the blogs I post. See how you go with the following questions. Your results are only known to you and no records are retained.

1. If the external sector overall is in deficit, it is still possible for the private domestic sector and government sector to run surpluses as long as GDP growth is fast enough (the technical condition is that the rate of GDP growth has to be faster than the real interest rate).



2. Federal government debt (where there is currency sovereignty) is not really a liability because the government can just roll it over continuously and thus they never have to pay it back. This is different to a household, which not only has to service its debts but also has to repay them at the due date.



3. Even though the money multiplier found in macroeconomics textbooks is a flawed description of the way the monetary system operates, having some positive minimum reserve requirements does constrain credit creation activities of the private banks more than if you have no requirements other than the rule that balances have to be non-zero.





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    This Post Has 3 Comments
    1. Steve, question 2 is very tricky because mostly it is true and just a tiny little bit false in one area. I think the professor enjoys inflicting a bit of distress on his students every so often. But he probably rationalizes it as being good for us in the long run… Either way, thanks for the quiz Professor!

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