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Saturday Quiz – May 29, 2010

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. The Australian Treasury equates the Non-Accelerating Inflation Rate of Unemployment (NAIRU) with full employment and uses this to calibrate their structural deficit estimates. Accordingly, the structural deficits will typically be:

2. Rising public debt levels at constant interest rates increase the volume of interest servicing payments that have to be made. These payments will:

3. Under a fiat monetary system, the absence of currency convertibility means:

4. When a sovereign government issues debt it logically:

5. Rising government bond yields for new issues indicate:

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    This Post Has 2 Comments
    1. Your answer for question 3 seems illogical. What aspect of a convertible currency would prevent the government motivating people to exchange goods and services in return for public spending by fining anyone of working age who walks down the street?

      And if the country’s constitution prevents them from fining anyone of working age who walks down the street, why must the currency be convertible?

    2. I disagree with #2 — even in a closed economy, rising interest rates do not necessarily reduce the room for non-inflationary deficit spending.

      For example, suppose that the economy is beginning to recover and we are coming out of a low interest rate environment — so interest rates are rising. In this case, the rising interest rates signal that there are more profit opportunities and therefore the opportunity cost is rising. That does not mean that inflation must be increasing — in fact, it doesn’t say much about inflation at all.

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