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The Weekend Quiz – August 6-7, 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. If the national accounts of a nation reveal that its external surplus is equivalent to 2 per cent of GDP and the private domestic sector is saving overall 3 per cent of GDP then we would also observe:

2. The British government's fiscal deficit rose despite the Conservative government's stated fiscal austerity stance. We can conclude from that fact that the austerity mantra of the British government doesn't correctly describe its fiscal policy stance.

3. In Year 1, the economy plunges into recession with nominal GDP growth falling to minus 1 per cent. The inflation rate is subdued at 2 per cent per annum. The outstanding public debt to GDP ratio was 100 per cent at the start of the year and the nominal interest rate remains at 2 per cent (and this is the rate the government pays on all outstanding debt). The government's fiscal balance net of interest payments goes into deficit during the year equivalent to 1 per cent of GDP and the public debt ratio rises by 4 per cent. In Year 2, the government stimulates the economy and pushes the primary fiscal deficit out to 4 per cent of GDP in recognition of the severity of the recession. In doing so it stimulates aggregate demand and the economy records a 4 per cent nominal GDP growth rate. The central bank holds the nominal interest rate constant but inflation falls to 1 per cent given the slack nature of the economy the previous year. Under these circumstances, the public debt ratio falls in Year 2, even though the fiscal deficit has risen because of the real growth in the economy.

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    This Post Has 6 Comments
    1. Ummm….

      Maybe Q2 should have been impossible to say?

      I think that the UK government are either:
      1) That their fiscal stance is to reduce the governments public deficit, but stupid to think that Austerity will bring about its reduction.
      2) That their overriding policy is to reduce the size of the state, and very clever because by framing governments debt like a households debt, they can use austerity to pursue this aim without the public dragging out the guillotines.

      Applying Hanlons razor, “Never assume malice when stupidity will suffice,” maybe True would have been the correct choice. But, equally ‘No’ would be a reasonable choice, if the government is actually pursuing a smaller state….and the outcome is a symptom of this.

    2. Continuing updates on the UK situation (delete if you want Bill.) All the talk about austerity and the fiscal rule and Brexit and Owen Smith adopting in large part anti-austerity and other J Corbyn positions, from a post at MainlyMacro I think that I have figured out what the “real story” is.

      The key clues Simon Wren-Lewis at MainlyMacro gave are:

      * «Smith [ … ] makes it clear that the UK will get a second opportunity to vote on Europe» (biggest clue).

      * «With the Brexit vote what I would call the pro-European centre desperately wants an effective voice.» (second biggest clue).

      * «In 2015 business and finance were 100% behind the Conservatives. With the Brexit vote, and the campaign’s leading lights running the coming negotiations, that has fundamentally changed.» (third biggest clue)

      So the story I now imagine is:

      * The business/establishment interests that wanted “Remain” still want “Remain” and want a second referendum or something equivalent.

      * There cannot be a second referendum, and the something equivalent must be a party that campaigns for an wins an election with a manifesto saying “Remain”, and that then is a binding commitment, while the referendum was merely advisory.

      * Therefore the business/establishment interests that want switch to “Remain” need to sponsor a party that will put “Remain” in its manifesto.

      * The liberals are irrelevant, the Conservatives are now compromised by the eurosceptic wing and will not put “Remain” in their manifesto, and anyhow the business/establishment interests are angry with them.

      * So the “Remain” business/establishment interests need to sponsor Labour, because that’s the only option, and after all Labour did get the vast majority of their voters to go for “Remain”.

      * While J Corbyn did achieve the miracle of getting the vast majority of Labour voters to choose “Remain”, the problem is that J Corbyn the day after the referendum called for an immediate invocation of Article 50, and will never put “Remain” in Labour’s next election manifesto, because it would be a complete betrayal’s of Labour’s historical base; and he is “not for turning”.

      * Therefore J Corbyn has to go, and be replaced with a PR agent of the business/establishment interests that want a “Remain” result. This PR agent must then talk the talk that made J Corbyn popular with the Labour base to maximize the chances that they will still vote Labour even if it has “Remain” in its manifesto, but the real goal is to pivot the Labour base and get the 40% of tories who voted “Remain” to vote New Labour in the next election.

      * As soon as such a PR agent is in place as Labour leader, the press and the BBC will do a complete change of tone, becoming enthusiastic supporters of New Labour, and vast funding will become available for the future “Remain” campaign and New Labour candidates, and many PLP member “understand” that not only they will get a chance to get government jobs but after that corporate/establishment sinecures will become available to them as they have always been available to tory MPs.

      So the plan seems to be to reposition Labour as “Conservatives for Europe”, which was P Mandelson’s position in 1999:

      «Peter [Mandelson] thinks that we are a quasi-Conservative Party but that we should stick our necks out on Europe.»

      Then New Labour in their “Conservatives for Europe” marketing strategy get to win the next election with both anti-austerity (to get the votes of their historical base) *and* “Remain” (to get the votes of the europhile tories) in their manifesto.

      Probably the business/establishment interests think that a bit of anti-austerity is acceptable as the price to pay to get a “Remain” victory.

    3. Just noticed that SimonWL at MainlyMacro has added:

      [Bill deleted link – I do not wish to send traffic to his site]

      and that article says:

      «May could follow a much-loved and long-followed rule of politics. She could find the longest grass available and kick this appalling problem right into it.»
      «She could skip all this two-year stuff and agree an interim arrangement where the UK stays in the single market while it negotiates its ultimate Brexit deal, with a deadline of 2020 to coincide with the general election.»
      «Won’t the Brexit guys hate that? Yep, but no option is actually good, they’re just different levels of bad. They’ll hate it less than if she said she’d stay in the single market permanently.»
      «This article is based on conversations with [ … the best and brightest of the establishment :) … ]»

      BTW my hypothesis above explains why the New Labour PLP have been attacking J Corbyn for losing the “Remain” vote with his lack of commitment even if he miraculously carried for “Remain” the vast majority of Labour voters like N Sturgeon did for SNP voters, and the “Remain” vote was list because the vast majority of tory voters went for “Leave”.

      It is a “dog whistle”: they don’t really talk about his successful commitment to “Remain” in the *past* referendum, but about his obvious lack of commitment to campaign again for “Remain” in a future election.

    4. mark and Horatio,

      ADHD is an issue with question three as it involves the invocation of the GDP/Debt ration equations which take a lot of working through and a fair amount of combinatoric mental juggling. I find it useful that Bill repeats these questions so that we can read the same stuff again and again. Retention is an issue but keep going- the road to clarity is sometimes tedious repetition.

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