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The Weekend Quiz – September 9-10, 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. The statement that lending is capital-constrained rather than reserve constrained would not apply if the banks had to maintain a reserve ratio of 100 per cent.

2. A central bank can control bank lending by charging an increasing price for providing its reserves to the commercial banks while maintaining its target monetary policy rate.

3. If policy makers use the NAIRU to compute the decomposition between structural and cyclical fiscal balances, then if the estimated NAIRU is above the true full employment unemployment rate, the estimated impact of the automatic stabilisers will always be biased downwards.

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    This Post Has 5 Comments
    1. I got 3 out of 3 but probably by luck. I simply couldn’t figure out the correct meaning of

      “.. true full employment unemployment rate”

      Is there something missing there or could it have been phrased differently?

    2. Dingo,

      When I discuss how money is created everyone understands it is the government who creates money.
      It is obvious Governments have the ability to mint and issue currency.

      Through a series of incorrect metaphors and non-sequitor thinking it seems the vast majority of the population seem to think we are somehow tied to our taxation ‘collection’ otherwise inflation/hyperinflation will occur. The thinking is of course completely illogical and wrong.

      There also seems to be a notion that fiat issuing governments borrow by issuing debt. The notion that this is somehow a financial liability for the government is incorrect. It will always be able to meet those payments. It must be referred to as Bond Issuance and the general public can then ask why the government chooses to issue bonds. Although technically ‘debt’ I think the term debt is an incorrect way to describe bond issuance. It’s not debt like a household.

      It is important to use new metaphors and analogies to discuss public financing and expenditures.

      I have these:
      – ‘The government must spend so we can earn’

      – ‘Inflation occurs when you spend in excess of the productive capacity of the economy’ (This limit is full employment)

      – I call a Government budget deficit an ‘Injection’, I call a surplus a ‘Contraction’ These terms reflect more accurately as to what happens in the private domestic sector.
      e.g The fiscal injection for the year is set to be $X and is being used to target ‘insert desired policies here’ or ‘The government has run a fiscal contraction for the year due to the high current account surplus we are experiencing to avoid inflationary impacts.

      – There is no such thing as Government Debt. It issues the currency and chooses to sell bonds. It’s a devious method for capital to acquire more wealth. (unsure of the best way to discuss this)

      I’ve been called crazy, a lunatic and all sorts of things. I’ve been told you just can’t create jobs to which I respond with ‘How do jobs come into existence in the first place?’

    3. ” The notion that this is somehow a financial liability for the government is incorrect.”

      Quibble: “Financial liability” has a solid meaning in accounting. Government borrowing is a liability for the government. Bill dealt with this last week. But it definitely is NOT a difficulty. That’s where household debt is different.

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