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Saturday Quiz – November 7, 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. In a fiat monetary system, government borrowing will push the interest rate up.

2. When the government repays debt it drives the interest rate down.

3. The central bank has no greater capacity under fixed exchange rates to defend its currency against a short-selling speculative attacks than it has under a system of flexible exchange rates.

4. Within a narrow band, the central bank can always control the short-term interest rate in a fixed exchange rate system because there is never a constraint on the government’s ability to add to bank reserves.

5. The Reserve Bank of Australia believes that in the long-run the real economy is not influenced by monetary variables (so interest rate rises do not have real effects). This is consistent with Phelps's view that workers' inflation expectations converge on the actual inflation rate, and, at the point, the economy is deemed to be at full employment no matter what the actual unemployment rate happens to be.

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    This Post Has 5 Comments
    1. Absolutely terrible performance from me this week – 1 from 5.
      That said I didn’t pay too much attention this week and it all hinged on how you define “borrowing”. Clearly I used the wrong definition.

      To think I scored 5 from 5 last week. I’d be lucky if I could do it again on the same quiz though.

    2. Questions one and two refer to “the interest rate”. I found this to be an odd phrasing since at first glance it seems to refer to the RBA administered cash rate, but following the answer link back to the functional finace article seems to refer to interest rates in a general way (ignoring the RBA). Is this what you mean, or is the RBA administered rate also ultimately determined by govt borrowing?

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