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Sunday, 03 January

05:00

Saturday Quiz – January 2, 2015 – answers and discussion Bill Mitchell – billy blog

Here are the answers with discussion for yesterday’s quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of Modern Monetary Theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

Question 1:

Issuing government debt reduces the risk of inflation arising from deficit spending because the private sector has less money to spend.

The answer is False.

The mainstream macroeconomic textbooks all have a chapter on fiscal policy (and it is often written in the context of the so-called IS-LM model but not always).

The chapters always introduces the so-called Government Budget Constraint that alleges that governments have to “finance” all spending either through taxation; debt-issuance; or money creation. The writer fails to understand that government spending is performed in the same way irrespective of the accompanying monetary operations.

They claim that money creation (borrowing from central bank) is inflationary while the latter (private bond sales) is less so. These conclusions are based on their erroneous claim that “money creation” adds more to aggregate demand than bond sales, because the latter forces up interest rates which crowd out some private spending.

All these claims are without foundation in a fiat monetary system and an understanding of the banking operations that occur when governments spend and issue debt helps to show why.

So what would happen if a sovereign, currency-issuing government (with a flexible exchange rate) ran a fiscal deficit without issuing debt?

Like all government spending, the Treasury would credit the reserve accounts held by t...

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Friday, 01 January

21:21

Asia’s New Year Economic Resolutions The Diplomat » Pacific Money

A tour of the prospects for the Asia-Pacific’s biggest economies in 2016.

Saturday, 26 December

05:00

Saturday Quiz – December 26, 2015 Bill Mitchell – billy blog

Welcome to the Special Boxing Day 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 questions. Your results are only known to you and no records are retained.

Please go to Saturday Quiz – December 26, 2015 to view the quiz

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