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The Weekend Quiz – January 23, 2016

Welcome to The Weekend Quiz, which used to be known as the 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. Many progressive commentators believe that bank lending should be more closely regulated to ensure that all bank loans were backed by reserves held at the bank. However, this would unnecessarily reduce the capacity of the banks to lend.



2. Assume a nation is running an external surplus equivalent to 2 per cent of GDP and the private domestic sector is currently saving overall 1 per cent of GDP. In this situation, the government must be running:





3. 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 of GDP. If the fiscal balance stays constant as a percent of GDP and the external surplus rises to the equivalent of 4 per cent of GDP then:









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    This Post Has 3 Comments
    1. 2/3 this time-drat! I think I know what scuppers me on these sectoral balance questions : it’s the confusion of polarities, that is, ‘deficit’ creates the intuition of a ‘-‘ sign an surplus a ‘+’ sign. Must pay more attention to Bill’s advisory note:

      “To aid interpretation remember that (I-S) > 0 means that the private domestic sector is spending more than they are earning; that (G-T) G; and (X-M) < 0 means the external position is in deficit because imports are greater than exports."

      So:

      private domestic sector deficit = positive number
      Government sector surplus = negative number
      External sector deficit is '-' and surplus '+'

      so without some practise it's easy to blunder-will do better next time!

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