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The Weekend Quiz – September 24-25, 2016

Welcome to The Weekend Quiz, which used to be known as the Saturday Quiz! The quiz tests whether you have been paying attention or not to the blogs I post. See how you go with the following questions. Your results are only known to you and no records are retained.

1. A nation, whose national government runs a balanced fiscal position over the economic cycle (peak to peak) must accept, that after all the spending adjustments are exhausted, its private domestic sector will be increasingly indebted if the nation is running an external deficit over that cycle.

2. A nation that manages its currency via a currency board always has to have sufficient foreign reserves to match the outstanding central bank liabilities (reserves and cash outstanding). Under this arrangement it can always guarantee 100 per cent convertibility but has to endure deflationary tendencies unless it runs external surpluses.

3. Modern Monetary Theory (MMT) demonstrates that mass unemployment can arise from workers demanding too high a nominal wage in relation to the inflation rate.

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    This Post Has 7 Comments
    1. Unbelievable, I got 3 out of 3! Slowly but surely this is all sinking in. Looking forward to the explanations to see if I got them correct for the right reasons.

    2. Professor, I will argue that your suggested answers to #1 and #3 are wrong. I am sure you are eager to read my argument (not), but you will just have to wait till tomorrow. After I have a chance to read the answers of course.

    3. Ummm its looking like my argument for #1 will be exceedingly weak. So I will ask a question that hopefully will be answered in the quiz answers. Does your suggested answer include a country in the Eurozone? And is there a possibility that the private sector in a country could spend down existing assets rather than go into debt in order to finance an external deficit for a period of time?

    4. I am also not very hopeful that I will be successful in my attempt to tell Bill Mitchell what MMT does or does not say about anything, let alone unemployment…

    5. Well, I have done some research on the writings of one of the founders of MMT which seems to indicate that in all cases, unemployment is due to a government’s response to economic conditions (or lack of response as the case may be). Indeed that unemployment could not even exist had a government not implemented a currency in the first place. I am having trouble tracking down that statement however to give it a proper citation. So I am more hopeful that I will be able to explain MMT to Bill Mitchell than I was earlier. Sort of hopeful like hoping the ball will land on one particular number on a roulette wheel sort of hopefulness.

    6. While I think I understand why the answer to #3 is true, my broader understanding of the cause of mass unemployment is lack of spending. No spending= less purchases = less production = less need for workers.

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