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Saturday Quiz – October 17, 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.

1. A government that issues its own currency is never in danger of becoming insolvent. However, it loses this sovereignty the moment it borrows in a foreign currency.



2. A government running a fiscal deficit has to offer sufficiently attractive interest rates on its debt to the private sector which means its borrowing costs rise to market rates. This is contrary to the modern monetary theory insight that deficits drive interest rates down.



3. Short-term market-driven interest rate movements in a modern monetary economy are the means through which household savings and business investment plans are mediated.



4. By highlighting the sectoral balances version of national income accounting, modern monetary theory shows us that if the fiscal budget was always balanced and the external sector was always in balance, then there could be no domestic saving.



5. The RBA governor said this week that "… in the long run, monetary policy is about the value of money – that is, prices … [but] … in the short term, monetary policy changes do affect the real economy, because they affect aggregate demand". This means that the RBA believes that interest rates have no impact on employment or economic growth over the long run.





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