Saturday Quiz – December 29, 2012

1. If austerity led to all national governments simultaneously running public surpluses (which is the aim) then it would be impossible for all their respective private domestic sectors to save overall.

2. When the government matches its deficit with debt-issuance it changes the portfolio of wealth held in the non-government sector. The impact on purchasing power is equivalent to a leakage from the expenditure system (akin to taxation, saving or imports) which reduces the expansionary impact of the government deficit spending.

3. A public employment guarantee program, which required workers to attend a government centre each day and do jigsaw puzzles, would have no impact on national income.

4. Which budget deficit outcome is the least expansionary?

5. Premium Question: If the government reduces its net spending by say $10 billion, the net financial assets destroyed by this fiscal withdrawal could be replaced by the central bank engaging in a $10 billion quantitative easing program.