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Saturday Quiz – October 31, 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. Almost every nation can achieve full employment if they have sufficient foreign reserves.

2. A national government budget surplus results from tax revenue exceeding spending and thus can be seen as "forced saving" (unspent private income). A deficit is the opposite and thus undermines total saving.

3. The Australian central bank (RBA) decision to raise interest rates is designed to increase the rates banks have to pay to attract deposits and thus undermines their capacity to make loans and fuel a renewed credit binge.

4. A central bank can always maintain zero short-term nominal interest rates.

5. While the crowding out hypothesis does not apply to budget deficits in a normal range, the fact that bond yields ultimately rise if the bond markets get saturated with government debt confirms that there is an upward effect on interest rates at some point from continued deficits.

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