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Saturday Quiz – July 3, 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 private domestic sector can save overall even if the government budget balance is in surplus as long as net exports are positive.

2. Central bankers are talking about the possible need for more quantitative easing to ease the aggregate demand losses associated with the implementation of fiscal austerity programs. However QE cannot be compared to a net fiscal injection because it creates no new net financial assets in the currency of issue.

3. The expansionary impact of deficit spending on aggregate demand is lower when the government matches the deficit with debt-issuance because then excess reserves are drained and the purchasing power is taken out of the monetary system.

4. The change in the net worth of the non-government sector when the government increases its net spending is invariant to government issuing debt $-for-$ to match the net spending rise.

5. While continuous national governments deficits are possible if the non-government sector desires to save, they do imply continuously rising public debt levels as a percentage of GDP.

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    This Post Has 4 Comments
    1. “Central bankers are talking about the possible need for more quantitative easing to ease the aggregate demand losses associated with the implementation of fiscal austerity programs.”

      What medium of exchange is used for quantitative easing? If the answer is central bank reserves, give me the proper definition of a central bank reserve?

    2. I only scored 1 out of 5, but given that I was trained in mainstream economics during my undergraduate and graduate level, clearly I need a proper debriefing. I Don’t want to become Zombie Economist . . . .like my peers

    3. Q2. If QE caused an increase in the price of the asset, would that not compare to a fiscal injection of the same size if the fiscal injection was equal to the increase in the asset price. While I agree fiscal injection can be much larger and more effective, that is not what the question asked.

    4. Ed Harrison has a post up called Lessons We Can Learn On How Stimulus And Jobs Programs Failed in Eastern Germany.

      He links to a piece in Spiegel:,1518,druck-703802,00.html

      I can only find one previous comment from Bill on East Germany from April 2009: “The fact that today the differences in standards of living are vast between the East and West parts indicates they have not spent enough as yet. Much more public infrastructure is needed in the East and more public jobs to alleviate the unacceptable levels of persistent unemployment.”

      Ed Harrison says “”In my view, the investments made into the former DDR present the best case scenario one can hope for regarding stimulus and public works programs.”

      Bill, I’d be curious to see you expand on what could have been done differently, beyond just doing more, which you suggested in the last comment. How could “malinvestment” be minimized, if indeed it is something to be concerned with? What about the other Spiegel criticisms like “the government-funded ersatz jobs were displacing many regular jobs and even decreased the chances of participants finding real work”?

      I hope to see more elaboration from informed authors on this seemingly very relevant topic and case study!

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