The Weekend Quiz – October 14-15, 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 current account (on balance of payments) is in deficit and household saving increases as a proportion of disposable income then the government could still run a surplus without a decline in output and income occurring.

2. Quantitative easing tries to stimulate economic activity by reducing long-term investment rates whereas deficit spending adds to aggregate demand via tax cuts or direct public spending. Both policy effort add reserves to the banking system in different ways and involve an increase in the net financial assets held by the non-government sector.

3. Politics aside, the US central bank could still increase interest rates even if the US government instructed it to directly purchase treasury debt to facilitate the national government’s fiscal deficit.

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    3 Responses to The Weekend Quiz – October 14-15, 2017

    1. Chloe Stapleton says:

      So number 1 is about degrees – so -2=-4+2 or if household savings increased -1=-3+2 (for sectoral balances assuming investment levels and CAD stay the same)?

      So number 2 – in QE they just replace dodgy bonds and government bonds with reserves, they don’t create net financial assets over and above what existed before like deficit spending does?

      So number 3, they could change the rate of return on reserves (in NZ ocr I think) which would raise interbank rates or I think they could also they sell some of those bonds they bought directly off the treasury to drain reserves?

    2. Lance says:

      Two outa three! Again! “Student should try harder. ” Says Prof Bill.

    3. Mark Kinnear says:

      BAAAAMMM !!!!! 3 from 3

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