Saturday Quiz – September 17, 2011

Welcome to the Special Land of Austerity – 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. If the inflation rate is steady and the central bank maintains a constant nominal interest rate, then the public debt ratio will rise if the government deficit doubles (say, from 2 to 4 per cent of GDP) although Modern Monetary Theory would not place any special importance in that increase.

2. The wage share in national income in many nations has fallen over the neo-liberal period which means that workers' real living standards are being eroded in those countries.

3. Real wages will rise if the rate of growth in earnings is faster than the growth in labour productivity.

4. A budget surplus indicates that the national government is trying to slow the economy down and contain inflation.

5. Premium Question: The EU/IMF/ECB strategy for Greece is twofold: (a) cutting real wages to improve external competitiveness; and (b) pushing the government back into surplus. The aim is to reduce the budget deficit without compromising real economic growth. It is hoped that an increase in net exports will replace the loss of spending from fiscal austerity. Suppose that the government announced it intended to cut its deficit from 4 per cent of GDP to 2 per cent in the coming year and during that year net exports were projected to move from a deficit of 1 per cent of GDP to a surplus of 1 per cent of GDP. In that situation we would conclude that the fiscal austerity plans would not undermine growth if the net export projection was realised.

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    One Response to Saturday Quiz – September 17, 2011

    1. Samuel Conner says:

      Hi Professor Mitchell,

      I got them all right this week, but only because I have become
      alert to what strikes me as a somewhat “tricky” aspect to some
      of your questions — the distinction between policy “intent” and
      policy “effect”.

      Maybe this is worth pressing on your learners, but I think that
      the effect of your policy, whatever its intent, may be to risk confusion
      in us, particularly those of us who are new to this. It might be best to
      focus on policy effects in the interest of teaching MMT to a widespread
      audience. Or maybe confine the “tricky” questions to the single weekly
      bonus question.

      Thanks for your weblog.


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