Saturday Quiz – December 20, 2014

Welcome to the 300th Edition of 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.

1. Start from a situation where the external surplus is the equivalent of 2 per cent of GDP and the fiscal surplus is 2 per cent. If the fiscal balance stays constant and the external surplus rises to the equivalent of 4 per cent of GDP then you can conclude that National income also rises and the private surplus moves from 0 per cent of GDP to 2 per cent of GDP.



2. Private sector wealth is invariant to the decision by government to issue bonds to the non-government sector to match its deficit spending as against not issuing any bonds.



3. When a government records a fiscal surplus, which means it is withdrawing more purchasing power from the economy than it is adding, we know that it is seeking to attenuate the growth in aggregate demand.





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    This Post Has 4 Comments

    1. Hah, I screwed up question 2 because I thinkoed the meaning of “wealth” – government bonds worth x dollars are exactly as valuable (personal wealth wise) as real estate worth x dollars. You can’t live in them, though . . .

    2. Hah, I screwed up question 2 because I thinkoed the meaning of “wealth” – government bonds worth x dollars are exactly as valuable (personal wealth wise) as real estate worth x dollars.

      How does government issuing bonds change anything about the total amount of private realestate?

    3. 2. Private sector wealth is invariant to the decision by government to issue bonds to the non-government sector to match its deficit spending as against not issuing any bonds.

      They key part is “private sector wealth is invariant” – ie. it doesn’t change. All that happens when the government issues bonds and private sector entities buy them is that wealth stored in the bank accounts of those entities is transferred into government bonds of the same value – no wealth is ccreated or destroyed, it’s just shifted to a different form.

    4. oh, you thought government bonds were real wealth as opposed to financial wealth. the statement doesn’t say anything about the composition of the wealth though.

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