Saturday Quiz – November 17, 2012

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

Quiz #191

• 1. The idea that government spending crowds out private spending is found in both Modern Monetary Theory (MMT) and mainstream economic theory.
• False
• True
• 2. National accounting shows us that a government surplus equals a non-government deficit. If the nation has an external deficit and if fiscal austerity ends up generating a budget surpluses, then the collective indebtedness of households and firms must be rising.
• False
• True
• 3. The share of wages in national income has fallen in most nations over the last 30 years. In part, this led to economic growth becoming more dependent on credit to maintain growth in consumption spending and was a primary cause of the global financial crisis. To reduce this dependency, the wage share will have to rise. However, with fiscal austerity now targetting cuts in real wages, the necessary reversal in the wage share decline will be thwarted.
• False
• True
• 4. Central banks in many nations moved from paying no return to commercial banks on overnight bank reserve balances to paying a positive interest return as the global financial crisis ensued. Previously, central banks had to conduct open market operations (sales and purchases of bonds) to provide (or deprive) the commercial banks of interest-bearing assets as a means of managing overnight liquidity (add or drain reserves) to ensure its policy rate was sustained. Ignoring any reserve requirements, the need to conduct these open market operations became redundant once they paid a positive return on overnight reserves.
• False
• True
• 5. Premium Question: The US Bureau of Labor Statistics just released the October 2012 Consumer Price Index data which showed a declining inflation rate in America. 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 in common parlance is expressed as too much money chasing too few goods. The fact that inflation is in retreat in the US despite the Federal Reserve having engaged in large-scale quantitative easing programs refutes the mainstream economic theory of inflation.
• False
• True

Sorry, quiz 191 is now closed.

You can find the answers and discussion here