skip to Main Content

The Weekend Quiz – January 7-8, 2017

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. Modern Monetary Theory (MMT) characterises the interaction between the government sector (treasury and central bank) and the non-government sector in terms of vertical transactions, which change the net financial asset position of the non-government sector. These are in contrast with transactions within the non-government sector, which net to zero in terms of the impact on that sector's net financial asset position. Both quantitative easing (a central bank operation) and net public spending (a treasury operation) satisfy this definition of a vertical transaction.

2. The real wage can only grow if the rate of growth in earnings outstrips labour productivity growth.

3. A fiscal deficit equivalent to 3 per cent of GDP is more stimulatory than a deficit equivalent to 1 per cent of GDP< even if we do not know what the structural and cyclical break down of the aggregate figure is.

Spread the word ...
    This Post Has 5 Comments
    1. I don’t agree with question 3. A 3% deficit that stays idle (funnelled into some savings scheme) would have less impact than a 1% deficit that doesn’t, or have a misread the question? Guess I’ll just have to wait for Bill’s explanation.

    2. Guima

      Hi, I made the same reasoning too: What if most of the 3% deficit spending is saved by the private sector and most of the 1% deficit spending keeps re-entering the spending circuit because private saving desires are satisfied?

      But I guess this considers two very different scenarios, one for each deficit spending. If you consider the same scenario for both deficit spending, then 3% deficit spending is always more stimulatory than 1% deficit spending:

      a) If the private sector desires to save, 3% deficit spending provides as many financial assets as 1% deficit spending for private savings, and there is an extra 2% remaining for more saving or for consumption/investment.

      b) If the private sector does not desire to save, 3% deficit spending adds more deposits to the spending circuit than 1% deficit spending.

      But what happens if the economy is near full capacity? It seems like both deficit spending would only push up prices and not necessarily increase out…

    Leave a Reply

    Your email address will not be published. Required fields are marked *

    This site uses Akismet to reduce spam. Learn how your comment data is processed.

    Back To Top