Saturday Quiz – September 5, 2009

Welcome to the billy blog Saturday quiz. The quiz tests whether you have been paying attention over the last seven days.

See how you go with the following five questions. Your results are only known to you and no records are retained.

Quiz #24

• 1. If the non-government sector had a positive desire to save and the economy was at full employment, then in the absence of central bank intervention, the overnight interest rate would fall to zero.
• False
• True
• 2. Prior to the Great Depression, economists believed that saving was required to provide the funds for investment and that the interest rate would regulate the relationship between the two. Keynes showed that investment created its own saving through income adjustments rather than interest rate adjustments.
• False
• True
• 3. In a deflationary environment, the real interest rate will eventually rise as long as the central bank does not introduce negative overnight rates.
• False
• True
• 4. A negative overnight interest rate means that the central bank is effectively imposing a fine on or taxing the private banks that hold reserves overnight. This is not inconsistent, however, with the central bank's major role which is to see there are sufficient reserves in the banking system at all times.
• False
• True
• 5. In a mainstream macroeconomics model there can be no general overproduction (unsold goods) and therefore no unemployment if the real interest rate is allowed to adjust freely to match unconsumed income with the intentions of investors.
• False
• True

Sorry, quiz 24 is now closed.

scroll down to find the answers and explanation below.

Quiz #24 answers

• 1. If the non-government sector had a positive desire to save and the economy was at full employment, then in the absence of central bank intervention, the overnight interest rate would fall to zero.

Answer: True

Explanation: You might like to review The natural rate of interest is zero! for further information or post a comment.

• 2. Prior to the Great Depression, economists believed that saving was required to provide the funds for investment and that the interest rate would regulate the relationship between the two. Keynes showed that investment created its own saving through income adjustments rather than interest rate adjustments.

Answer: True

Explanation: You might like to review Knowlegable economic commentary still exists for further information or post a comment.

• 3. In a deflationary environment, the real interest rate will eventually rise as long as the central bank does not introduce negative overnight rates.

Answer: True

Explanation: You might like to review Negative interest rates QE gone mad for further information or post a comment.

• 4. A negative overnight interest rate means that the central bank is effectively imposing a fine on or taxing the private banks that hold reserves overnight. This is not inconsistent, however, with the central bank's major role which is to see there are sufficient reserves in the banking system at all times.

Answer: True

Explanation: You might like to review Negative interest rates QE gone mad for further information or post a comment.

• 5. In a mainstream macroeconomics model there can be no general overproduction (unsold goods) and therefore no unemployment if the real interest rate is allowed to adjust freely to match unconsumed income with the intentions of investors.

Answer: True

Explanation: You might like to review The natural rate of interest is zero! for further information or post a comment.