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Saturday Quiz – May 2, 2015

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.

1. If there is an external deficit of 2 per cent of GDP and the government achieves a fiscal balance then the private domestic sector will have:

2. When a national government borrows from the private sector it drains funds out of the system and reduces the risk that public spending will overheat the economy.

3. A national government would be unable to rely on the central bank purchasing treasury debt to match its fiscal deficit (that is, "monetise the deficit") if the central bank is targeting a positive short-term policy rate.

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    This Post Has 4 Comments
    1. Yes, 3 out of 3.
      Bill, I have a question about Q1 though, what is the difference in “excess of spending” and “deficit in spending” are they not the same thing? When there is govt deficit is spends more than taxes. Terminology is confusing.
      Also, this is not related but do taxes really drive money? Because you could save in foreign currency and convert to pounds to pay tax. So tax does does not necessarily drive currency? Although this would be a hassle and the other thing is the govt can tax foreign bank accounts to prevent dollarisation.

    2. Bob

      It’s supposed to be confusing; Bill is a sneaky so-and-so. A “deficit” is not the same as a “deficit in spending relative to income”. A deficit in spending relative to income means spending is less than income, which in terms of accounting and sectoral balances is a surplus. An excess of spending relative to income is clearly spending more than income: a balance deficit.

      In your tax scenario, people still need to acquire the currency in order to pay the tax. If taxes are levied in pounds, then it doesn’t matter to the government whether you get those pounds directly from a government contract, from selling goods to others in the private sector, or from converting foreign currency. You still need to acquire those pounds one way or another, and the ultimate source is still the same: the currency issuer.

    3. petermartin2001

      Ah, my reply with a link appears to be in the spam filter, and Bill is probably tucked up in bed at this time. So, avoiding a link; if you search online for Neil Wilson at 3spoken you’ll find his posts on UK stats.

      The change is clear in the data, but I suppose they might try to claim it’s not because of a change in policy.

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