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Saturday Quiz – July 16, 2011

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 six questions. Your results are only known to you and no records are retained.

1. A rising household saving ratio combined with an external deficit that is draining aggregate demand, doesn't necessarily mean that the budget deficit has to rise to maintain current output growth.

2. Assume that total employment grew in a particular month in net terms yet unemployment still rose. You also know that the labour force participation rate fell marginally. Taken together this information tells you that:

3. If the European Monetary Union (Eurozone) relaxed the budget restrictions on national governments that are applicable under the Stability and Growth Pact (3 per cent deficit to GDP ratios and 60 per cent public debt to GDP ratios) then the current solvency risk facing several EMU members would be resolved.

4. The Greek crisis could significantly ease its current crisis if it improved its capacity to tax its higher income earning groups.

5. Premium question: Mainstream economists have argued that the large scale quantitative easing conducted by central banks in recent years - so-called printing money - would be inflationary. They base their predictions on the Quantity Theory of Money which links the growth of the money stock to the inflation rate (too much money chasing too few goods). The fact that inflation has not accelerated sharply indicates that this mainstream economic theory should be discarded.

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