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The Weekend Quiz – March 16-17, 2019

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

1. The only way that unbalanced external accounts across nations (some countries with surpluses and other deficits) can exist is because the surplus countries desire to hold financial assets denominated in the currency of the deficit countries.

2. Like anything in abundance, it is true that when there is more "money" in the economy its value declines.

3. The imposition of a fiscal rule at the national government level that the fiscal position is required to be in balance at all times would eliminate fiscal swings driven by the automatic stabilisers.

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    This Post Has 9 Comments
    1. I think I will argue about your answer to question #1. But it is probably more wise to wait to see the answer you provide. And then argue or not. Thanks for the quiz.

    2. Jerry-is that analogy with corporate equity issuance in the article really valid?

      I mean that we know that Government spending is a net asset and bond issuance has an effect on reserves whereas the GM equity issuance is part of the endogenous system.

      I’ve often thought about this myself and wondered whether it is a dodgy analogy….

    3. I’m no expert on economics or MMT.
      To me the analogy is not valid because GM must find buyers for the new shares it wants to sell. If there are no buyers at a high enough price, and offering more shares drives down their price rapidly, then it can’t sell enough shares to pay the debt.
      OTOH, the US can sell bonds directly to the Fed. [as was done with half of the total war bonds sold in WWII] to get the dollars to pay the outstanding bonds due at that time. Then it can raise taxes to get more revenue to pay bonds that are due later. It could even just create dollars with key strokes.
      So, it is not valid, IMHO.

    4. Simon, I think it is valid. But like Steve American points out- it is limited in that GM needs to find people willing to exchange US dollars for its shares. Whereas the US government does not ‘need’ to find anyone to buy its debt- it could just have the Fed buy it. Or it could just not issue debt in the first place. But this is one of those areas where I am not very confident in my opinion and would appreciate being corrected :)

    5. On 2nd thought, I don’t really understand the analogy. So, maybe it is more valid than I thought.
      . . . OTOH, when the Gov. deficit spends it is not adding to the damage if the Gov. does the impossible and is bankrupt and liquidated. However, if GM is in serious trouble and can’t make a bond or other loan payment and so needs some cash from somewhere, then whoever is giving it the cash is taking a serious risk of losing it. One way or the other it will cost GM a substantial amount to convince someone to take that risk. So, the level of risk is quite different.
      . . . Another difference is that the Gov. is deficit spending for the good of the nation or corruptly for the good of some fat-cat. But, if GM does the above, it is doing it to save its ass.

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