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The Weekend Quiz – September 2-3, 2017

Welcome to The Weekend 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. Continuous fiscal deficits are more likely to present an inflation risk than one-off deficits designed to meet a short-term private spending decline.

2. When a nation runs a current account deficit accompanied by a government sector surplus (of equal proportion to GDP as the external deficit), we know that the private domestic sector will be spending less than they are earning.

3. To maintain financial stability, the monetary base has to be driven by changes in the money supply.

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    This Post Has 12 Comments
    1. I’ve been going through many of the earlier blogs on the equations, especially to understand the basic one

      (S – I) = (G – T) + (X – M)

      Would anyone be able to kindly point me to where I can find the most reliable source of these figures as a % of GDP and which ones are actually being used by Bill.

      As an example of where I am struggling I have been doing a lot of searching for govt spending as % of GDP, and it often comes as two different types of figures, there is deficit/GDP and then there is spending/GDP. Would we be using the deficit/GDP? (I’m assuming so because this is after tax?)

      Also, I notice I can’t find savings/GDP but only savings as a ratio of income, but I think this is the same thing because I think Bill said income is GDP


    2. Dingo, Total expenditure equals total income equals nominal GDP for a country that does not buy or sell or take from outside itself. So I think that is why Bill says income equals GDP.

      The equation (S-I)= (G-T)+(X-M) does not require the percentage of GDP of any particular category in order to be understood as telling us that one side of the ‘equals symbol’ will balance the other. So you don’t necessarily want to be concerned with percentage to GDP of any particular element of this equation unless all six of them are expressed as percentages of GDP.

    3. Thx Jerry, but where do you source the figures from and which sources are most reliable? the ABS?

      I’m asking because I am putting the values into a spreadsheet so I can see them graphically for myself

    4. Dingo, on the very few occasions that I attempt to do more than explain what Bill Mitchell has taught me in slightly different words, I try to use which has a lot of stats that I am terrible at accessing let alone explaining. But if you are into that stuff you can probably go there and find a lot of what you are looking for. Courtesy of the US government of course. But keep in mind that all Americans are not horrible people and not everything the US government does is always awful even while you consider the source of the info.

    5. Dear Dingo and Jerry Brown (at 2017/09/02 at 4:53 pm)

      The sectoral balances are calculated using official data from the ABS (for Australia). However, the definitions are not clean, especially with respect to household and corporate saving. By the way, the household saving ratio is disposable income less consumption as a percentage of disposable income, the latter income measure differing from GDP (because it excludes taxes and transfers).

      The best way to accumulate the data is to use the Balance of Payments data for external deficit (current account) and the official fiscal balance for the general government sector. Then you calculate the private domestic balance as a residual, knowing it must satisfy the sectoral balances identity.

      CAD data is easily gained from the RBA statistics too.

      best wishes

    6. Hi Bill,

      This is what I came up with so far.

      All data I got from the ABS from their excel spreadsheets.

      where c/a is current account
      I hope I have done it right, but I took each of the 4 quarters for each year and added them all up to come up with the figures below

      and g/s is govt spending

      I then added c/a and g/s to get h/s (household savings)

      c/a % gdp g/s % gdp h/s % gdp gdp
      2004 -56767 -4.69% -7561 -0.62% -64328 -5.31% 1211148
      2005 -56127 -4.49% -11927 -0.95% -68054 -5.45% 1248916
      2006 -60085 -4.68% -18115 -1.41% -78200 -6.09% 1283879
      2007 -76155 -5.68% -20656 -1.54% -96811 -7.22% 1340592
      2008 -59649 -4.34% -25078 -1.82% -84727 -6.16% 1375802
      2009 -59198 -4.23% 24175 1.73% -35023 -2.50% 1398707
      2010 -48202 -3.37% 45896 3.21% -2306 -0.16% 1430792
      2011 -42793 -2.91% 46947 3.19% 4154 0.28% 1471096
      2012 -62096 -4.08% 40562 2.66% -21534 -1.41% 1522506
      2013 -49792 -3.20% 21514 1.38% -28278 -1.82% 1556106
      2014 -46880 -2.93% 31096 1.94% -15784 -0.99% 1599191
      2015 -77871 -4.76% 36810 2.25% -41061 -2.51% 1637348
      2016 -44493 -2.65% 35254 2.10% -9239 -0.55% 1676967

      It would be nice to find a statistic in the ABS which will reflect the figures (or thereabouts) of h/s. Strangely, I have not been able to find any statistic anywhere where it states household savings as a % of gdp.

      But anyway, I notice on your chart here, that since 1983 private balance as % of gdp has always been negative and still is (exception 2011)!!


    7. Dingo, here is an example of plugging in different assumptions and numbers into a sectoral balances equation.

      I think it is good and would recommend reading his whole series (the other 18 to date) on this subject. It is pretty much what Bill Mitchell has been saying, just presented in a slightly different way- it has a lot of equations if you find those things helpful.

    8. Dear Dingo (at 2017/09/02 at 7:04 pm)

      The problem is that you have not calculated the public balance correctly nor the private domestic sector, which is more than household saving. Further, as I indicated earlier, household saving is out of disposable income not total income.

      The best way to do it is to use annual data not quarterly.

      Take the CAD from RBA figures. Public deficit from the annual fiscal papers supplied with the May statement. And then calculate the private domestic balance as a residual using the sectoral balances constraint.

      best wishes

    9. Thx Bill,
      I took another go as per your suggestion

      cad bud psector

      2016 -2.7 2.4 -0.3
      2015 -4.7 2.4 -2.3
      2014 -2.9 3.1 0.2
      2013 -3.2 1.2 -2
      2012 -4.3 2.9 -1.4
      2011 -3 3.4 0.4
      2010 -3.6 4.2 0.6
      2009 -4.6 2.2 -2.4
      2008 -4.9 -1.7 -6.6
      2007 -6.7 -1.6 -8.3
      2006 -5.8 -1.6 -7.4
      2005 -5.9 -1.5 -7.4
      2004 -6.2 -0.9 -7.1
      2003 -5.4 -0.9 -6.3
      2002 -3.7 0.1 -3.6
      2001 -2.1 -0.8 -2.9
      2000 -3.9 -2 -5.9
      1999 -5.3 -0.6 -5.9
      1998 -4.7 0 -4.7
      1997 -2.8 1.1 -1.7

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